nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2018‒03‒12
five papers chosen by

  1. Asset Securitization and Bank risk: Do Religiosity or Ownership Structure Matter? By Omneya Abdelsalam; Marwa Elnahass; Sabur Mollah
  2. Asset Securitization and Risk: Does Bank Type Matter? By Omneya Abdelsalam; Marwa Elnahass; Sabur Mollah
  3. How do mortgage refinances affect debt, default, and spending? Evidence from HARP By Abel, Joshua; Fuster, Andreas
  4. Financing Lumpy Adjustment By Christoph Görtz; Plutarchos Sakellaris; John D. Tsoukalas
  5. Mass Incarceration and the Underground Economy in America By Brian Sykes; Amanda Geller

  1. By: Omneya Abdelsalam (Durham University); Marwa Elnahass (Newcastle University); Sabur Mollah (School of Management, Swansea University)
    Abstract: We test the impact of religiosity and ownership structure on the risk profile of banks, which issued securitisation. We employ GMM estimation using unique database on asset securitization of 672 commercial banks (4889 year-observations) in 22 countries (from 2003-2012), which have dual banking system. We find that banks with higher securitisation activity have consistently shown a riskier profile by being significantly less adequately capitalised and offering higher ratio of net loans to total assets. Controlling for bank type (Islamic and conventional banks), we find that although Islamic banks, in general, show a conservative approach towards risk by keeping higher reserves and more liquidity, banks involved in new issuance of asset securitization as still exposed to a higher risk profile . Controlling for a country religiosity shows different risk profile of banks in countries with different religiosity thresholds. Controlling for different types of bank ownership highlights an additional exposure to credit risk in addition to capital adequacy and liquidity risks. Our results emphasize the importance of identifying the impact of bank type and the religiosity / culture factors in global banking studies. Our results are of importance to both local and international regulators as well as different stakeholders in banks.
    Keywords: Securitisation, Islamic banks, Conventional banks, Bank Risk, Capitalization.
    JEL: C23 G01 G21 G28 L50 M41
    Date: 2018–02–24
  2. By: Omneya Abdelsalam (Durham University); Marwa Elnahass (Newcastle University); Sabur Mollah (School of Management, Swansea University)
    Abstract: This study is among the first attempts to tests for the relative differences between Islamic and conventional asset securitizations on bases of bank’s capitalization and risk (credit risk and liquidity risk) during two evidential crises, financial crisis (2007-2009) and the political crisis (2011-2012). We employ GMM estimation for uniquely constructed data for global asset securitization of commercial banks in 22 countries in the years 2003 to 2012, data of 672 global banks (4889 year-observations). We find that on average, securitized banks are less capitalized but more liquid than non-securitized banks. Islamic banks (IBs) involved in securitization hold higher quality loan portfolios and are more prudent but less liquid than securitizing conventional banks (CBs). We find no relative differences between the two sectors with respect to capitalization. Results are robust during the financial crisis. Additional tests, distinguishes between retained and non-retained interests for asset securitizations to test whether the level of control of the securitizing assets affect banks’ risk and capital adequacy. We find that non-retain interests by banks over securitization indicate significantly high prudence by banks however; this is associated with lower liquidity Our results are of importance to both local and international regulators as well as different stakeholders in banks. The bank type does not matters but the relative size of retained interests to the total issuance is that matters because it shows that there is impact on credit risk. Constrained model of IBs do not improve their liquidity though but helped with loan portfolio.
    Keywords: Securitisation, Islamic banks, Conventional banks, Bank Risk, Capitalization.
    JEL: C23 G01 G21 G28 L50 M41
    Date: 2018–02–24
  3. By: Abel, Joshua (Harvard University); Fuster, Andreas (Federal Reserve Bank of New York)
    Abstract: We use quasi-random access to the Home Affordable Refinance Program (HARP) to identify the causal effect of refinancing a mortgage on borrower balance sheet outcomes. We find that on average, refinancing into a lower-rate mortgage reduced borrowers' default rates on mortgages and nonmortgage debts by about 40 percent and 25 percent, respectively. Refinancing also caused borrowers to expand their use of debt instruments, such as auto loans, home equity lines of credit (HELOCs), and other consumer debts that are proxies for spending. All told, refinancing led to a net increase in debt equal to about 20 percent of the savings on mortgage payments. This number combines increases (new debts) of about 60 percent of the mortgage savings and decreases (paydowns) of about 40 percent of those savings. Borrowers with low FICO scores or low levels of unused revolving credit grow their auto and HELOC debt more strongly after a refinance but also reduce their bank card balances by more. Finally, we show that take-up of the refinancing opportunity was strongest among borrowers that were in a relatively better financial position to begin with.
    Keywords: mortgages; refinancing; monetary policy transmission; heterogeneity; HARP
    JEL: D14 E21 G21
    Date: 2018–02–01
  4. By: Christoph Görtz; Plutarchos Sakellaris; John D. Tsoukalas
    Abstract: We Study how firms finance Lumpy adjustment in capital, employment and inventories. We analyse U.S. firm data from Compustat covering 1971-2013. Lumpy expansion and contraction episodes in firms' productive assets are important in accounting for movements in macroecnomic and financial aggregate variables. Firms use primarily cash balances and debt in order to expand or contract capacity, but these margins are not perfect substitutes. Cash balances play a preparatory role rising (falling) temporarily prior to lumpy positive (negative) adjustment. Debt is also important as firms de-leverage (increase leverage) prior to lumpy positive (negative) adjustment and then slowly increase leverage (deleverage) often several years after the event. Small and large firms differ in their use of external equity to finance Lumpy events. During Lumpy adjustment profitability and leverage are positively correlated.
    Keywords: Lumpy firm adjustment, Event study, Leverage, Debt, Cash, Financing.
    JEL: G30 G32 E32
    Date: 2017–04
  5. By: Brian Sykes (University of California-Irvine); Amanda Geller (New York University)
    Abstract: With more than 850,000 people returning home from prisons and jails annually during an era of decarceration, understanding the labor market opportunities available to formerly incarcerated people is important for public policy. Yet, the mark of a criminal record has profound impacts on the employment and wage trajectories of disadvantaged men. Correspondence and audit studies routinely find that low-wage, secondary sector employers actively discriminate against those with criminal records, even when firms say they are open to hiring the formerly incarcerated. In this paper, we investigate whether the underground economy provides employment opportunities for men with criminal histories. Specifically, we assess whether formerly incarcerated men are more likely than their never-incarcerated counterparts to work in the underground economy, and how macroeconomic conditions shape the likelihood of working in the informal economy. We find that formerly incarcerated men are indeed more likely to work underground; however, the extent to which the macroeconomy shapes their odds of employment in either the formal or underground economies is significantly different for incarcerated men than their never-incarcerated counterparts. Our results have implications for understanding patterns of employment and wage mobility among disadvantaged men.
    Keywords: incarceration, dual labor markets, employment stratification, underground economy, informal economy
    JEL: K42 D63 E26
    Date: 2017

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