Research articles for the 2021-04-14

A Comprehensive Financial Analysis Tools on the Financial Institution on COVID-19 Perspective
Sivaruban, Sivanathan
The study examined on how financial analysis tools can be used on the financial institution in the global pandemic crisis event. The Financial analysis of a financial institution is based on the financial tools such as the results of financial statements analysis, the Company valuation methods, Due Diligence, Qualitative factors, and Options â€"based valuation. The financial tools can be used to make a decision on the acquisitions of the Financial Institution. Forecasting Financial Statement under COVID-19, the global pandemic is very complex and cannot be predicted accurately. The Financial statements prediction is impacted heavily by the global pandemic, COVID-19 resulting in negative economic growth in the world. The primary data collection for this study were collected from a quoted public list financial company’s financial statement. The Investment decision will be based on the future earnings of the Company, at the same, the past financial years’ performance and financial position which can help to make a viable decision. The final come of this study concluded that financial analysis cannot done in the logical manner and analysist should be a more resilient. The future study on the financial statement analysis tools need be develop a suitable model under any crisis event.

A Game Changer in Payment Habits: Evidence from Daily Data During a Pandemic
Ardizzi, Guerino,Nobili, Andrea,Rocco, Giorgia
We explore the relationship between cash and other payment instruments using the outbreak of the COVID-19 pandemic as a natural experiment exogenously affecting both the payment industry and consumers’ habits. We rely on Google search data, as well as on the official series of new cases of infection to measure the intensity of the pandemic, and apply local projection methods to assess the effects on payment habits. We find a large and persistent substitution effect from cash to card-based transactions, especially using contactless and e-commerce options. The fear of infection has led to a new implicit cost associated to each payment instrument, thus affecting payment choices from the demand-side and boosting consumption with non-cash transactions. Moreover, technical constraints on the cash cycle and the lockdown measures have increased the demand for cash for precautionary purposes. Policies aiming at accelerating the digital economy and the most innovative means of payment can potentially make economic activity more resilient to adverse shocks. At the same time, ensuring the adequate and efficient availability of cash remains essential from a social and economic perspective.

A Sequential Sustainability Transformation Model for Financial Institutions
Sancak, Ibrahim E.
This study configures a sustainability transformation model for financial institutions considering the EU and German sustainability perspectives. The study zooms in on sustainability transformation issues deploying Stouten, Rousseau, & Cremer’s Model of ten key evidence-based steps in managing planned organizational change as an anchor in developing a sequential sustainability transformation model (STM) and classifying transformation steps in terms of E, S, and G factors. In building step-by-step an avenue for financial institutions towards sustainability, it becomes clearer that the governance factor plays the most significant and dominant role among ESG factors. The model (STM) itself, organizational change steps, transformation steps, and the findings address key takeaways not only for financial institutions but also non-financial organizations planning a full-fledged sustainability transformation and striving for a quantum leap in their markets. This study also connects the relevant literature and industry practices on sustainability transformation and addresses future research topics in the same avenue.

A maximum entropy model of bounded rational decision-making with prior beliefs and market feedback
Benjamin Patrick Evans,Mikhail Prokopenko

Bounded rationality is an important consideration stemming from the fact that agents often have limits on their processing abilities, making the assumption of perfect rationality inapplicable to many real tasks. We propose an information-theoretic approach to the inference of agent decisions under Smithian competition. The model explicitly captures the boundedness of agents (limited in their information-processing capacity) as the cost of information acquisition for expanding their prior beliefs. The expansion is measured as the Kullblack-Leibler divergence between posterior decisions and prior beliefs. When information acquisition is free, the homo economicus agent is recovered, while in cases when information acquisition becomes costly, agents instead revert to their prior beliefs. The maximum entropy principle is used to infer least-biased decisions based upon the notion of Smithian competition formalised within the Quantal Response Statistical Equilibrium framework. The incorporation of prior beliefs into such a framework allowed us to systematically explore the effects of prior beliefs on decision-making in the presence of market feedback, as well as importantly adding a temporal interpretation to the framework. We verified the proposed model using Australian housing market data, showing how the incorporation of prior knowledge alters the resulting agent decisions. Specifically, it allowed for the separation of past beliefs and utility maximisation behaviour of the agent as well as the analysis into the evolution of agent beliefs.

Application of Blockchain Technology in the Agri-Food System: A Systematic Bibliometric Analysis and Policy Imperatives
Mohapatra, Soumya,B, Sainath,KC, Anirudh,L, Lalhminghlui,RK, Nithin,Bhandari, Gunjan,Nyika, Joan,R, Sendhil
Blockchain technology (BCT), since its emergence touted to be disruptive, is gaining momentum especially in the agri-food system owing to its multiple benefits. In the paper, we attempted to conduct a systematic bibliometric analysis of the BCT in the agri-food system. The analysis comprises the list of countries and institutions that conducted research on BCT in the agriculture, growth trend analysis in research publications, bibliographic coupling of journals, countries and institutions researching on BCT. This bibliometric analysis discovered that many researchers have started exploring the implementation of BCT in agriculture sector and its application to resolve various issues in internet of things (IoT). China, the USA and India were the highly active countries in BCT research and publication, however, India is having very a limited research collaboration with other countries as compared to China and the USA. The keyword analysis indicates the role of BCT in order to maintain the transparency of supply chain by means of protecting privacy of personal data of the core members. The analysis indicates that, inter alia, BCT offers multiple benefits and scope in the agri-food system in terms of enabling food safety and traceability, timely and transparent payment mechanism, record keeping, efficient supply chain management, and, warranting credit as well as insurance in the agri-food system. The paper also discusses the opportunities and challenges at the forefront followed by policy implications targeted for different stakeholders. Future research should aim to formulate policies in order to encourage implications of BCT in agricultural supply chain along with incorporating blockchain as a fragile sector in agriculture for ensuring undistorted competition among the stakeholders.

Assessing the Priceâ€"Earnings Relation via Machine Learning
Starica, Catalin,Marton, Jan Peter
The relation between stock prices and accounting earnings has been a central theme in accounting research for more than half a century. By almost exclusively emphasizing a lin- ear, parametric approach, the literature has been unable to convincingly overcome a number of modeling issues, including the effects of non-linearity and lack of fit.We show that a non-linear, non-parametric approach based on recent advances in statistics and machine learning successfully addresses these modeling issues. Our methodology is validated in three ways: 1) residuals meet the orthogonality property, i.e., the estimated relation fits, 2) the firm-specific dependence of price on earnings agrees with theoretical predictions in the literature, and 3) our empirical earnings response coefficients yield reasonable cost of capital estimates.

COVID-19 Impact, Sustainability Performance and Firm Value: International Evidence
Bose, Sudipta,Shams, Syed ,Ali, Muhammad Jahangir,Mihret, Dessalegn
We examine the impact of COVID-19 on changes in firm value, and the moderating role of firm-level sustainability performance on this relationship. We find that firms domiciled in countries where the COVID-19 impact is more devastating experience greater decline in firm value. The negative impact of COVID-19 on firm value is less pronounced for firms with better sustainability performance. Firms domiciled in countries with a higher level of environmental- and stakeholder-value-oriented culture experience less decline in firm value from the impact of COVID-19. Findings suggest a firm’s stakeholder-value orientation contributes to preserving a firm’s value when general stakeholder value declines.

Circular Economy, Banks and Other Financial Institutions: What’s in it For Them?
Ozili, Peterson K
The circular economy agenda is widely seen as a response to climate change and is forcing societies to re-evaluate how resources are used towards creating a sustainable economy that is free of waste. Financial institutions are being pressured to finance circular projects and investment. But for financial institutions to participate in the circular economy, there must be a clear benefit to financial institutions. In this paper, I highlight the benefit of the circular economy to banks and other financial institutions. The paper uses discourse analysis methodology to present an overview of the circular economy concept and the benefit of the circular economy to banks and other financial institutions. The findings show that some benefits of the circular economy to banks include: (i) greater loan diversification opportunities, (ii) promotes responsible and sustainable banking, (iii) increased lending to circular clients and the recycling sector which means more profit for banks, and (iv) correcting the bad perception about banks in society. Some benefits of the circular economy to other financial institutions include: (i) issuance of special insurance policies for reused products; (ii) greater sustainability-adjusted return on investment; (iii) greater funding to microfinance institutions; and (iv) more opportunities for collaborative funding to circular businesses. This study contributes to the scant literature that examine the role of the finance industry in the circular economy.

Common Heritage of Mankind- In Sea and Space
Malhotra, Ankit
The ‘common heritage of mankind’ (Legal Concept) principle within international law provides for a general framework of universal responsibility of sustained legal and environmental protection. It establishes a close link of space law to the law governing other areas beyond national jurisdiction, such as the high seas, the deep seafloor, and some might even argue Antarctica.

Computation of the marginal contribution of Sharpe ratio and other performance ratios
Benhamou, Eric,Guez, Beatrice
Computing incremental contribution of performance ratios like Sharpe, Treynor, Calmar or Sterling ratios is of paramount importance for asset managers. Leveraging Euler's homogeneous function theorem, we are able to prove that these performance ratios are indeed a linear combination of individual modified performance ratios. This allows not only deriving a condition for a new asset to provide incremental performance for the portfolio but also to identify the key drivers of these performance ratios. We provide various numerical examples of this performance ratio decomposition.

Corporate Asset Pricing
Brøgger, Andreas
Koijen and Yogo (2019, 2020) show that unexplained demand movements are responsible for the majority of asset price changes. This paper helps explain this unexplained demand. Using corporate demand, I provide the first demand-based convenience yield explanation. I show that when managers are exposed to moral hazard, corporate demand will be determined by their idiosyncratic risk. I see in the cross-section that idiosyncratic volatility leads to higher financial asset holdings, higher savings, and has decreased corporate investment by 5% on average annually. In the time series corporate demand predicts 29% of the convenience yield variation. This effect dominates other investor classes such as financial intermediaries. I isolate my demand-based effect from confounders by using exogenous cross-sectional variation from corporate size and industry exposures.

Enabling Machine Learning Algorithms for Credit Scoring -- Explainable Artificial Intelligence (XAI) methods for clear understanding complex predictive models
Przemysław Biecek,Marcin Chlebus,Janusz Gajda,Alicja Gosiewska,Anna Kozak,Dominik Ogonowski,Jakub Sztachelski,Piotr Wojewnik

Rapid development of advanced modelling techniques gives an opportunity to develop tools that are more and more accurate. However as usually, everything comes with a price and in this case, the price to pay is to loose interpretability of a model while gaining on its accuracy and precision. For managers to control and effectively manage credit risk and for regulators to be convinced with model quality the price to pay is too high. In this paper, we show how to take credit scoring analytics in to the next level, namely we present comparison of various predictive models (logistic regression, logistic regression with weight of evidence transformations and modern artificial intelligence algorithms) and show that advanced tree based models give best results in prediction of client default. What is even more important and valuable we also show how to boost advanced models using techniques which allow to interpret them and made them more accessible for credit risk practitioners, resolving the crucial obstacle in widespread deployment of more complex, 'black box' models like random forests, gradient boosted or extreme gradient boosted trees. All this will be shown on the large dataset obtained from the Polish Credit Bureau to which all the banks and most of the lending companies in the country do report the credit files. In this paper the data from lending companies were used. The paper then compares state of the art best practices in credit risk modelling with new advanced modern statistical tools boosted by the latest developments in the field of interpretability and explainability of artificial intelligence algorithms. We believe that this is a valuable contribution when it comes to presentation of different modelling tools but what is even more important it is showing which methods might be used to get insight and understanding of AI methods in credit risk context.

Equity Tail Risk in the Treasury Bond Market
Rubin, Mirco,Ruzzi, Dario
This paper quantifies the effects of equity tail risk on the US government bond market. We estimate equity tail risk as the option-implied stock market volatility that stems from large negative jumps as in Bollerslev, Todorov and Xu (2015), and assess its value in reduced-form predictive regressions for Treasury returns and an affine term structure model for interest rates. We document that the left tail volatility of the stock market significantly predicts one-month-ahead excess returns on Treasuries both in- and out-of-sample. The incremental value of employing equity tail risk as a return forecasting factor can be of economic importance for a mean-variance investor trading bonds. The estimated term structure model shows that equity tail risk is priced in the US government bond market. Consistent with the theory of flight-to-safety, we find that Treasury prices increase and funds flow from equities into bonds when the perception of tail risk is higher. Our results concerning the predictive power and pricing of equity tail risk extend to major government bond markets in Europe.

Financial Inclusion and Economic Growth: The Role of Governance in Selected MENA Countries
Emara, Noha,El Said, Ayah
Financial inclusion, whether in terms of adoption or usage, is one of the main, but challenging priorities in the MENA region. The paper empirically investigates the relationship between financial inclusion and economic growth in selected MENA countries. A system GMM dynamic panel model technique is employed on yearly data for the period 1965-2016, using a number of measures of financial inclusion covering the households and the firms access to finance. Particularly, the study uses indicators such as the number of bank accounts (per 1000 adult population), bank accounts for corporates/enterprises, and the number of bank branches and ATMS (per 100,000 people), percentage of firms using banks to finance investments, the percentage of firms using bank loans to finance working capital, and the percentage of firms using banks to finance investments. The results of the study indicate that financial inclusion positively impacts GDP per capita growth in the selected countries. Financial inclusion measured by the household’s financial access index has a positive and statistically significant impact on economic growth in the MENA region, but requires supervisory and regulatory regimes with backing of the rule of law, judicial independence, contract enforcement, control of corruption, and political stability. The effect firms’ access to finance is only significant in the presence of strong institutions. The results were insignificant for the general financial inclusion measure.

Firm Undercapitalization in Italy: Business Crisis and Survival Before and After COVID-19
Orlando, Tommaso,Rodano, Giacomo
In a context characterized by upcoming regulatory changes and deeply affected by the COVID-19 epidemic, this paper examines the diffusion of firm undercapitalization (i.e., the firm displaying a level of equity below the legal limit) among Italian corporations. In a proposal by the National Board of Accountants, business crisis is substantially identified with undercapitalization. Indeed, our analyses show that the onset of undercapitalization often anticipates business termination: around 60 percent of involved firms go out of business within 3 years. In 2010-18, on average around 8.5 percent of Italian companies were undercapitalized. The impact of the COVID-19 epidemic may be substantial: our predictions indicate that the share of undercapitalized firms at the end of 2020 may exceed 12 percent. This estimate incorporates the powerful mitigating effects of several interventions enacted by the Italian government between March and August 2020 to support firms damaged by the pandemic. The increase in undercapitalization may reverberate onto the functioning of the new ‘early warning’ system, which will become operational in September 2021: our predictions suggest that the number of firms that could be involved in early warning procedures may be almost twice as large as that foreseeable on the basis of accounting data from 2018.

Firms’ Leverage Across Business Cycles
De Socio, Antonio
Based on a large sample of mostly unlisted non-financial companies, this paper studies the relationship between business cycles and firms’ leverage, disentangling the relative contributions of debt and equity and assessing the role of firm size in explaining cross-sectional heterogeneity. I find that aggregate leverage initially increases during busts, as debt growth remains steady, while the counterbalancing contribution of equity is smaller; after one year, as debt slows down, leverage decreases. Moreover, firm size matters, also after controlling for other proxies of financial frictions (age, risk, profitability, debt structure): leverage increases more at the beginning of busts for both very large and smaller firms; after one year, leverage decreases less for the latter, mainly due to persistently lower profits.

Global Business Scenario Planning â€" Uncertainties and Suggestions for the Financial World
ul Haq, Bina
• Scenario planning can mitigate losses, increase market expansion, prevent business regional exit and maximise profits.• Global banks must form partnerships with local and Islamic banks in global markets to utilize local expertise, acceptance and success.• Businesses operating in different geographies with ranges of products and services are valuable, to leverage risk and create a better playing field.• Global presence allows strategic support of clients as they grow and transact across markets and countries.• Geopolitical risk is the highlighted concern in regions with diversity such as Europe, the Middle East and Asia.

Graph-based Representations of Credit Portfolios and Their Analysis
Strassberger, Mario
Financial institutes have to be in a position to describe and to analyze the networks of obligors in their credit portfolios. If one obligor defaults who is numerously connected with other obligors in the portfolio there can be effects of credit contagion. We suggest a graph-based modeling of micro-structural relationships of obligors in credit portfolios. Analyzing the graph topology, we identify the most important obligors and the weightiest relations. In addition, information is provided on possible credit contagion and risk concentration. This may help to examine potential implications of defaults on the rest of the portfolio.

In Vogue Again: The Re-Rise of SPACs in the IPO market
Passador, Maria Lucia
Were we to distill 2020 into a single word, from the capital markets’ perspective at least, it would certainly be SPACs, which â€" although to a different extent â€" are now having their momentum on both shores of the pond. If, in the US, SPACs are really enjoying a new lease of life due to the pandemic, as if they were Charon ferrying markets through the darkest of waters, although they are not comparable to what happens across the Atlantic, data in Europe seem to be growing steadily.This article focuses on SPACs in the US pre-COVID scenario (between January 2010 and December 2019), in order to understand their structural changes over the years and the grounds for their recent resurgence. Firstly, it aims to identify the length and profitability of such an investment phenomenon and understand the behavior of institutional investors in this context. Then, the possible investment shifts in the sector of SPACs, driven by the 2020 post COVID bubble, are analyzed, relying on data retrieved from different providers and players, and specifically focusing on three main current concerns: the increasing litigation phenomenon, the (resulting) increase in D&O insurance costs, and the engagement of PIPEs as guarantors of the soundness and of the successful outcome of the transaction.Undoubtedly, in the near future, US SPACs will hold a foreground role, not plunging back into the shadows (or even worse into the darkness that they had been living in for years), and will certainly be able to update and evolve for good, as they showed themselves capable of doing in the past, thereby overcoming problems and perplexities raised about them.

London Allowing Dual Class Premium Listings: A Swedish Commentary
Lidman, Erik,Skog, Rolf
In the UK Listing Review it is suggested that the London Stock Exchange should allow companies with dual class share (DCS) structures with differentiated voting rights to list on the Premium segment. In this paper, we discuss this proposal. First, we present an overview of the DCS-debate together with the proposition in the Hill Review to allow for DCS-listings under certain conditions. Second, we discuss the arguments that are made against DCS-listings. For the sake of comparison and reference, we then give an overview of the Swedish DCS-regulation and the political economy. From there, we discuss the conditions for DCS-listing recommended in the Hill Review. Our conclusion is that several of the DCS-listing conditions suggested might not only hinder DCS-structures from being useful for companies that wish to utilize such structures but would in several cases disable the corporate governance mechanisms that would otherwise counteract several of the problems that DCS-structures can give rise to, most prominently the market for corporate control.

L’alfabetizzazione finanziaria degli italiani: i risultati dell’indagine della Banca d’Italia del 2020 [Italian People’s Financial Literacy: The Results of the Bank of Italy’s 2020 Survey]
D'Alessio, Giovanni,De Bonis, Riccardo,Neri, Andrea,Rampazzi, Cristiana
Italian Abstract: Il lavoro analizza i risultati dell’Indagine sull’Alfabetizzazione e le Competenze Finanziarie degli Italiani (IACOFI), condotta dalla Banca d’Italia all’inizio del 2020 seguendo la metodologia OCSE-INFE che definisce l’indicatore di competenze finanziarie come la somma dei punteggi calcolati per tre aspetti: le conoscenze, i comportamenti e le attitudini. L’indagine conferma la posizione di ritardo dell’Italia nel confronto internazionale, già rilevata nel 2017, ma mostra un miglioramento nelle conoscenze degli italiani e una sostanziale stabilità nei comportamenti e nelle attitudini. L’alfabetizzazione differisce nella popolazione a seconda del livello di istruzione â€" la variabile più rilevante â€" del genere, dell’età e della localizzazione geografica degli intervistati. Un esercizio econometrico focalizzato sulle conoscenze â€" l’indicatore più significativo â€" mostra che gli italiani possono essere suddivisi in quattro gruppi, caratterizzati da livelli crescenti di conoscenze finanziarie: gli esclusi, gli incompetenti, i competenti e gli esperti. Le nostre stime consentono di approfondire, per gruppi di intervistati, le cause del miglioramento delle conoscenze registrato tra il 2017 e il 2020: le popolazioni degli esclusi e degli incompetenti sono diminuite, a fronte di un aumento dei competenti, e, in piccola misura, degli esperti.English Abstract: The paper analyses the results of the Survey on the Financial Literacy of Italian Adults, conducted by the Bank of Italy in early 2020. In line with the OECD’s methodology, the financial literacy indicator is the sum of the scores calculated for three factors: knowledge, behaviour and attitudes. The survey confirms that Italy lags behind by international standards, as already noted in the 2017 survey. Compared with 2017, the new survey shows that Italian people’s financial knowledge has improved, while their behaviour and attitudes have essentially remained stable. Financial literacy varies among the population according to the education levels â€" the most significant variable â€" gender, age and geographical location of those interviewed. An econometric analysis focused on knowledge â€" the most reliable component â€" shows that Italians can be divided into four groups, characterized by increasingly high levels of financial knowledge: excluded, incompetent, competent and expert. Between 2017 and 2020, the number of excluded and incompetent individuals in the population has decreased, whereas that of competent, and to a lesser extent, of expert individuals has increased.

OMNI Channel Buyers - An Emerging Trend in Indian Retail Market
Zaware , Prof Dr Nitin ,Samudre, Harshada
In today’s technologically driven world consumer shopping behavior towards different channels has changed. Customers can buy any product at any time from anywhere. The customer is using various online and offline channels simultaneously for buying any product which leads to the omnichannel buying behavior of the customer. He does not care about the channel from where he is buying the product but the most important thing is what experience he is getting out of that channel. So retailers should try to give the seamless experience to the buyers whatever channel he prefers. It has become a difficult task for the retailers for managing the channels at different levels. This research paper tries to study the concept of omnichannel buyers as well as how consumer behavior has changed the retail industry scenario in India. This paper also focuses on challenges faced by retailers due to the Omnichannel buying of customers.

On the effect of social norms on performance in teams with distributed decision makers
Ravshanbek Khodzhimatov,Stephan Leitner,Friederike Wall

Social norms are rules and standards of expected behavior that emerge in societies as a result of information exchange between agents. This paper studies the effects of emergent social norms on the performance of teams. We use the NK-framework to build an agent-based model, in which agents work on a set of interdependent tasks and exchange information regarding their past behavior with their peers. Social norms emerge from these interactions. We find that social norms come at a cost for the overall performance, unless tasks assigned to the team members are highly correlated, and the effect is stronger when agents share information regarding more tasks, but is unchanged when agents communicate with more peers. Finally, we find that the established finding that the team-based incentive schemes improve performance for highly complex tasks still holds in presence of social norms.

Optimal Portfolio Using Factor Graphical Lasso
Tae-Hwy Lee,Ekaterina Seregina

Graphical models are a powerful tool to estimate a high-dimensional inverse covariance (precision) matrix, which has been applied for a portfolio allocation problem. The assumption made by these models is a sparsity of the precision matrix. However, when stock returns are driven by common factors, such assumption does not hold. We address this limitation and develop a framework, Factor Graphical Lasso (FGL), which integrates graphical models with the factor structure in the context of portfolio allocation by decomposing a precision matrix into low-rank and sparse components. Our theoretical results and simulations show that FGL consistently estimates the portfolio weights and risk exposure and also that FGL is robust to heavy-tailed distributions which makes our method suitable for financial applications. FGL-based portfolios are shown to exhibit superior performance over several prominent competitors including equal-weighted and Index portfolios in the empirical application for the S&P500 constituents.

Organizational Resources, Country Institutions, and National Culture Behind Firm Survival and Growth during COVID-19
Liu, Yu,Peng, Mike,Wei, Zuobao,Xu, Jian,Xu, Lixin Colin
We provide one of the first comprehensive and most updated studies on the effects of firms’ organizational resources, country institutions, and national culture on the survival and growth of private firms around the world during the COVID-19 pandemic. Analyzing World Bank Enterprise Follow-up Surveys on COVID-19 that covers 18,770 firms from 36 countries, we document four sets of findings. (1) During the pandemic, firms with favorable organizational resources (i.e., state ownership and affiliation with parent companies) are more likely to survive and grow, whereas firms with foreign ownership or with more financial obstacles are less likely to survive or grow. Firms in countries with a higher per capita income, a lower COVID spread, and a less stringent COVID control policy are more likely to survive and grow. (2) Favorable ownership and parent-company affiliations help cushion the pandemic shock during the pandemic. (3) The relationship between firm characteristics and firm survival/growth is significantly affected by the stringency of a country’s COVID policy. (4) Firm survival and growth are positively related to a country’s cultural tendency in terms of long-term orientation, and are not significantly related to uncertainty avoidance and individualism. The overall country governance quality is negatively linked to the odds for firm survival as well as revenue and employment growth.

Prussia To Russia Business Strategy And Foreign Policy â€" Economic War In Europe
ul Haq, Bina
• Russia is a pill Europe cannot swallow nor can spill; exit costs from Russian trade and foreign relations will have long lasting and adverse effects on businesses and trade globally.• The factors discussed in this article indicate the economic war in Europe. Greece bail out or not, Russia is in a win-win position with deep trade roots in the EU.• Moscow holds a position to influence policies/opinions with ties on the far right and hard left. Moscow may employ divide-and-conquer strategies towards Greece and others to undermine the EU and NATO.• Russia is vital in BRICs, and could join with Greece to create large-scale energy projects including a pipeline to carry gas from former Soviet states to Europe.• West sanctions against Russian target major financial, energy and military industries. The EU needs a coherent strategy towards Russia. Russia is seeking strategic military partnerships with various EU countries.

Putin’s Russian Elections: Geopolitical Impacts, Economic And Foreign Policy, And International Business
ul Haq, Bina
The Russian system is not yet capable of running on its own, without Putin amid internal and external challenges and threats.Russian youth sees him as a hero; photos, participating in skiing, fishing, hunting, judo, hockey, ice dip in sub zero freezing water to mark Epiphany, and horse riding are a trademark of his physical strengths and connection to them.Putin established economic reforms; concentrated on foreign policy and security. Keen eyes on young democratic countries in emerging markets and Arab Spring geopolitical uncertainty, to capture opportunities in energy.Putin’s feuds with Western powers, has characterized him a villain, but a hero at home. He is criticised for centralized political and economic power in his own hands; he did what was required in the best interest of Russia.The future of the companies established businesses and secured, tenders, projects and public procurement in Putin’s regime.

Putting a Price on Tenure
Marzagão, Thiago
Government employees in Brazil are granted tenure after three years of taking their entrance exams. Firing a tenured government employee is all but impossible, so tenure is a big perquisite. But exactly how big is it? No one has ever attempted to estimate the monetary equivalent of tenure for Brazilian government workers. We do that in this paper. We use a modified version of the Sharpe ratio to estimate what the risk-adjusted salaries of government workers should be. The difference between actual salary and risk-adjusted salary gives us an estimate of how much tenure is worth for each employee. We find that the median value of tenure is R$ 4517 for federal government employees, R$ 2560 for state government employees, and R$ 672 for municipal government employees.

Quantum Computation for Pricing the Collateralized Debt Obligations
Hao Tang,Anurag Pal,Lu-Feng Qiao,Tian-Yu Wang,Jun Gao,Xian-Min Jin

Collateralized debt obligation (CDO) has been one of the most commonly used structured financial products and is intensively studied in quantitative finance. By setting the asset pool into different tranches, it effectively works out and redistributes credit risks and returns to meet the risk preferences for different tranche investors. The copula models of various kinds are normally used for pricing CDOs, and the Monte Carlo simulations are required to get their numerical solution. Here we implement two typical CDO models, the single-factor Gaussian copula model and Normal Inverse Gaussian copula model, and by applying the conditional independence approach, we manage to load each model of distribution in quantum circuits. We then apply quantum amplitude estimation as an alternative to Monte Carlo simulation for CDO pricing. We demonstrate the quantum computation results using IBM Qiskit. Our work addresses a useful task in finance instrument pricing, significantly broadening the application scope for quantum computing in finance.

Security Law, Regulation and Public Policy for Accounting Professionals
Bagby, John W.
The failed accounting “Cognitor” credential might have channeled accountancy into information security at the turn of the 21st Century. However, the accounting profession delayed this responsibility until recently: cybersecurity engagements, client confidentiality and attestations. Contrasting the earlier topic listings approach to certification exams, current certification exam content specifications increasingly seek to develop career long skills and foundations for intellectual growth. Scholarly preparation of future accountants requires knowledge of the pubic policy of security: law, regulation, standards in addition to professional work methods. In Part I this paper examines security and privacy conceptually to enable accountants’ professional growth. Part II then maps state, federal, international laws and professional standards to accounting professionals’ emerging cybersecurity and privacy duties.

Set-valued risk statistics with the time value of money
Fei Sun,Weitao Liu,Xiaozhi Fan

The time value of money is a critical factor not only in risk analysis, but also in insurance and financial applications. In this paper, we consider a special class of set-valued risk statistics from the perspective of time value of money. This new risk statistic can be uesd for the quantification of portfolio risk. By further developing the properties related to these risk statistics, we are able to derive representation results for such risk.

Spillover Effects of Banks’ Specialization in Corporate Lending on Mortgage Lending: The Industry Expertise Channel
Xiao, Zhanbing,Zheng, Yuxiang
This paper documents an industry expertise channel through which a bank’s corporate lending can influence its mortgage lending. The industry expertise a bank gains through lending to firms in a specific industry strengthens its understanding of economic conditions in counties where the industry is a major sector. Thus, for households in those counties, banks can better evaluate their short-term and long-term financial conditions, and hence their mortgage affordability. Information gained from the industry expertise channel improves banks’ screening and monitoring efficiencies, leading to increased allocation of mortgage credits towards counties with same industry specializations. The effects are stronger when the information asymmetry between banks and mortgage borrowers is high or when local risk is high. Mortgages originated through such a channel are also less likely to default.

Systemic Risk, Islamic banks and the COVID-19 pandemic: An empirical investigation
Rizwan, Muhammad Suhail,Ahmad, Ghufran,Ashraf, Dawood
While operating side-by-side with conventional banks, the systemic risk profile of Islamic banks could be different due to their unique business model. Using a sample of ten countries with dual-banking systems, where the Islamic banking sector is considered systemically important, this paper evaluates the systemic risk and identifies the determinants of systemic importance (measured using spillover indices) of financial institutions. The objective is to understand whether there are any differences in the systemic risk profiles of conventional and Islamic banks during the COVID-19 pandemic. The results indicate a significant increase in systemic risk in the sample countries during the first half, followed by a recovery in the second half, of 2020. Comparative analysis shows that Islamic banks, while earning abnormal returns, pose significantly less spillover to others relative to conventional banks. During the COVID-19 pandemic, there is an overall increase in spillovers, the magnitude of the effect of systematic risk increased, and higher abnormal return performance shows a negative association with spillover. Furthermore, we find that sensitivity to oil prices is a systemic risk factor for financial institutions, especially for Islamic banks. The results are robust to alternate estimation techniques. The findings of this study provide valuable insights for regulators of dual-banking systems.

The Core, the Periphery, and the Disaster: Corporate-Sovereign Nexus in COVID-19 Times
Jappelli, Ruggero,Pelizzon, Loriana,Plazzi, Alberto
We study how the COVID-19 pandemic reshaped the relation between corporate and sovereign credit risk in the cross-section of countries in the European Union. Surprisingly, the outbreak triggered higher elasticity of corporate to sovereign CDS spreads in core countries, which realigned to that of peripheral countries, with lower fiscal capacity, for which the impact of the pandemic on the elasticity was essentially muted. During the pandemic, we observe systematic departures of actual CDS from those implied by a standard structural model of default for larger firms in core EU countries with budgetary slackness. We interpret this evidence in light of a disaster-risk asset pricing model with bailout guarantees and defaultable public debt. Based on the model and a synthetic control method, we show that CDS-implied risk-adjusted bailout guarantees over the medium term were about three times larger in the Core than in the Periphery.

The Impact of Sudden Stops in Capital Flows on Output and Investment: Selected Emerging Markets
Emara, Noha,Ni, Congcong,Gao, Ya
We evaluate how vulnerable the emerging markets are to sudden stops, that is, capital inflow reversals, using panel data for 12 emerging economies for the period 1976-2002 that experienced such reversals. We investigate the impact of sudden stops on the macroeconomic indicators of economic growth and investment by employing the Generalized Method of Moments (GMM) estimation methodology. A robustness check is performed using regional groups and introducing additional control variables. We find that sudden stops have lagging, negative, and robust effect on output and investment, while the effect on investment is not always robusth.

The Over-Reaction Effect in The Stock Exchange of Thailand: An Empirical Study
Pokavattana, Nitis,Sethjinda, Thananporn,Tangjitprom, Nopphon
One of the main cornerstones of traditional financial theory is the Efficient Market Hypothesis (EMH). However, several violations of EMH have been discovered to the contrary of explanation provided by traditional financial theory. One of the key discoveries was the over-reaction effect of investors to recent information over base-rate data by De Bondt and Thaler (1985), which has been further studied in many different markets. Inspired by the work of De Bondt and Thaler (1985), this study investigated the over-reaction effect in the Stock Exchange of Thailand during 2012â€"2017 and the total return to investors based on the contrarian trading strategy by tracking performance of past losers and winners portfolio. In terms of method of analysis, this study tracked the total return index of stocks listed in the Stock Exchange of Thailand tracked during 2012â€"2014 to identify top 20% winners and bottom 20% losers. Equal weighted portfolios of winners and loser portfolios were formed with Cumulative Average Returns (CARs) tracked during 2015-2017 for comparison of performance. Mean difference and t-test were performed to test statistical significance. The results show that loser portfolios outperformed winner portfolios by 35.48%, 31.77%, and 55.87% at 1 year, 2 years, and 3 years after ranking, respectively. The differences between the returns generated by loser and winner portfolio were statistically significant from the 27th month onward. This study provides supporting evidence for the over-reaction effect in the Stock Exchange of Thailand during the study period. Results of portfolio tracking suggest that over-reaction of investors in the Stock Exchange of Thailand may present an opportunity for “contrarian trading strategies” over a medium term holding period. In other words, contrarian investors could benefit from tracking performance of underpriced stocks, for which the market has underestimated earning potential and business prospects and avoiding position in overpriced “hot” stocks, for which the market has overreacted to positive news, resulting in overpricing.

The Role of a Nation's Culture in the Country's Governance: Stochastic Frontier Analysis
Vladimír Holý,Tomáš Evan

What role does culture play in determining institutions in a country? This paper argues that the establishment of institutions is a process originating predominantly in a nation's culture and tries to discern the role of a cultural background in the governance of countries. We use the six Hofstede's Cultural Dimensions and the six Worldwide Governance Indicators to test the strength of the relationship on 94 countries between 1996 and 2019. We find that the strongest cultural characteristics are Power Distance with negative effect on governance and Long-Term Orientation with positive effect. We also determine how well countries transform their cultural characteristics into institutions using stochastic frontier analysis.

Unprecedented decarbonization of China's power system in the post-COVID era
Biqing Zhu,Rui Guo,Zhu Deng,Wenli Zhao,Piyu Ke,Xinyu Dou,Steven J. Davis,Philippe Ciais,Pierre Gentine,Zhu Liu

In October of 2020, China announced that it aims to start reducing its carbon dioxide (CO2) emissions before 2030 and achieve carbon neutrality before 20601. The surprise announcement came in the midst of the COVID-19 pandemic which caused a transient drop in China's emissions in the first half of 2020. Here, we show an unprecedented de-carbonization of China's power system in late 2020: although China's power related carbon emissions were 0.5% higher in 2020 than 2019, the majority (92.9%) of the increased power demand was met by increases in low-carbon (renewables and nuclear) generation (increased by 9.3%), as compared to only 0.4% increase for fossil fuels. China's low-carbon generation in the country grew in the second half of 2020, supplying a record high of 36.7% (increased by 1.9% compared to 2019) of total electricity in 2020, when the fossil production dropped to a historical low of 63.3%. Combined, the carbon intensity of China's power sector decreased to an historical low of 519.9 tCO2/GWh in 2020. If the fast decarbonization and slowed down power demand growth from 2019 to 2020 were to continue, by 2030, over half (50.8%) of China's power demand could be provided by low carbon sources. Our results thus reveal that China made progress towards its carbon neutrality target during the pandemic, and suggest the potential for substantial further decarbonization in the next few years if the latest trends persist.

Viewer's Perception About Ethics in Television Advertising with Reference to Young Adults (18-25)
Jerry Louis, Radha,Zaware , Prof Dr Nitin
Television being the most prominent and powerful means of communicating the promotional message, due efforts are taken by marketers to communicate the message effectively. However, many leading organizations do not take efforts to understand the consumer psychic and viewpoint of the receiver. An effort has been made by the researcher to understand how an ad is received and perceived in terms of ethics by a specific age group i.e. young adults. This research paper is written with an aim to study the Viewer's perception of ethics in television advertising with reference to the food and beverage sector in the Pune region. Select areas of the Pune district i.e Kalyani Nagar, Viman Nagar, Lohegoan, vishrantwadi areas were chosen for the study.

Walking the Walk? Bank ESG Disclosures and Home Mortgage Lending
Basu, Sudipta,Vitanza, Justin,Wang, Wei,Zhu, Xiaoyu (Ross)
We show that banks with high ESG ratings issue fewer mortgages in poor neighborhoodsâ€"in quantity and dollar amountâ€"than banks with low ESG ratings. This lending disparity is observed at both the county and census tract level, and is amplified in disaster areas of hurricane strikes. Additional tests indicate no difference in mortgage default rates between high- and low-ESG banks, rejecting an alternative explanation based on differential credit screening quality. The evidence supports a social wash effect, in which banks deploy prosocial rhetoric and symbolic actions despite not lending much in disadvantaged communities, the social function they ought to perform. The Community Reinvestment Act (CRA) examinations only partially undoes the social wash effect.