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on Banking |
| By: | Grupp, Marcel |
| Abstract: | Although banks are at the center of systemic risk, there are other institutions that contribute to it. With the publication of the leveraged lending guideline in March 2013, the U.S. regulators show that they are especially worried about the private equity firms with their high-risk deals. Given these risks and the interconnectedness of the banks through the LBO loan syndicates, I shed light on the impact of a bank's LBO loan exposure on its systemic risk. By using 3,538 observations between 2000 and 2013 from 165 global banks, I show that banks with higher LBO exposure also have a higher level of systemic risk. Other loan purposes do not show this positive relationship. The main drivers influencing this relationship positively are the bank's interconnectedness to other LBO financing banks and its size. Lending experience with a specific PE sponsor, experience with leading LBO syndicates or a bank's credit rating, however, lead to a lower impact of the LBO loan exposure on systemic risk. |
| Keywords: | leveraged buyouts,syndicated loans,systemic risk |
| JEL: | G21 G23 G28 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:101&r=ban |
| By: | Saunders, Anthony; Schmid, Markus; Walter, Ingo |
| Abstract: | The issue of optimum bank scope is central to many proposals for banking system reform. For example, a core component of the Dodd-Frank Act (2010) and regulatory proposals in the UK and the EU has been the concept of “ring-fencing” – i.e., restricting banks’ activities to their core retail and wholesale financial intermediation functions. One set of arguments holds that limiting the scope of bank activities reduces the likelihood of failure related to business lines that are highly risky. A second set of arguments holds that diversification of banks across traditional interest generating business and non-traditional businesses enhances bank profitability and reduces idiosyncratic risk. Based on a sample of 368,006 quarterly observations on 10,341 US banks during the period 2002-2013, we find that a higher ratio of non-interest income (derived from fees and non-core activities such as investment banking, venture capital and trading) to interest income (associated with deposit-taking and lending to retail and commercial clients) is associated with a higher profitability across the banking sector and under different market regimes. This finding is stronger during the crisis period than in either the pre- and post-crisis periods. Banks with a higher fraction of non-traditional income are also shown to have a lower insolvency risk as measured by the Z-score, and recovered faster after the 2007-09 crisis. Our results hold across bank size groups and are robust to the inclusion of bank fixed effects, bank size, and various measures of leverage and asset quality in the regressions. |
| Keywords: | Bank Size, Financial Crisis, Profitability, Core-banking Activity |
| JEL: | G01 G21 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:usg:sfwpfi:2014:17&r=ban |
| By: | Kogler, Michael |
| Abstract: | This paper provides a new rationale for macroprudential regulation and studies its optimal design, implementation, and distributional consequences. In a partial equilibrium model where bank risk taking is subject to moral hazard, we show that although private contracting can solve the bank's agency (i.e., risk shifting) problem, the market outcome is constrainedinefficient: The combination of moral hazard and competition for deposits that are not supplied elastically leads to a pecuniary externality as raising deposits ultimately increases the deposit rate and exacerbates risk shifting of all other banks. As a result, banks are too large, have too much leverage, and take excessive risk. This generic inefficiency provides a strong rationale for regulation even in the absence of classical frictions such as social cost of bank failure or incorrectly priced deposit insurance. The pecuniary externality can be internalized by standard regulatory tools such as capital requirements or by issuing a specific number of banking licenses. Related to the idea of financial restraint, optimal regulation creates rent opportunities to reward prudent banks. This also leads to redistribution from depositors to banks and firms with access to the capital market such that optimal regulation is not a Pareto improvement. |
| Keywords: | Bank Regulation, Bank Competition, Risk Taking, Moral Hazard |
| JEL: | D60 D62 G21 G28 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:usg:econwp:2015:12&r=ban |
| By: | Grupp, Marcel |
| Abstract: | In the mid-1990s, institutional investors entered the syndicated loan market and started to serve borrowers as lead arrangers. Why are non-banks able to compete for this role against banks? How do the composition of syndicates and loan pricing differ among lead arrangers? By using a dataset of 12,847 leveraged loans between 1997 and 2012, I aim to answer these questions. Non-banks benefit from looser regulatory requirements, have industry expertise which helps them in the screening and monitoring of borrowers and focus on firms that ask for loans only instead of additional cross-selling of other services. I can show that non-banks specialize on more opaque and less experienced borrowers, are more likely than banks to choose participants that help to reduce potentially higher information asymmetries and earn 105 basis points more than banks. |
| Keywords: | non-bank lead arrangers,syndicated loans,spread premium |
| JEL: | G21 G23 G32 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:100&r=ban |
| By: | Bart Keijsers (Erasmus University Rotterdam, the Netherlands); Bart Diris (Erasmus University Rotterdam, the Netherlands); Erik Kole (Erasmus University Rotterdam, the Netherlands) |
| Abstract: | Cyclicality in the losses of bank loans is important for bank risk management. Because loans have a different risk profile than bonds, evidence of cyclicality in bond losses need not apply to loans. Based on unique data we show that the default rate and loss given default of bank loans share a cyclical component, related to the business cycle. We infer this cycle by a new model that distinguishes loans with large and small losses, and links them to the default rate and macro variables. The loss distributions within the groups stay constant, but the fraction of loans with large losses increases during downturns. Our model implies substantial time-variation in banks' capital reserves, and helps predicting the losses. |
| Keywords: | Loss-given-default; default rates; credit risk; capital requirements; dynamic factor models |
| JEL: | C32 C58 G21 G33 |
| Date: | 2015–05–04 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20150050&r=ban |
| By: | Claudia Curi (Faculty Economics and Management, Free University of Bolzano); Ana Lozano-Vivas (University of Malaga); Valentin Zelenyuk (School of Economics, The University of Queensland) |
| Abstract: | Diversified and focused business models may affect foreign bank efficiency differently. We investigate whether there is an optimal business model along three business dimensions—assets, funding and income—and which business model is optimal for foreign banks in a financial center. We apply recently developed non-parametric methods with bootstrap to estimate group efficiency, to test for differences across groups and finally to analyze the link between bank efficiency and diversification measures. Using Luxembourg bank data that include the financial crisis, we find that there is no unique business model. The most efficient business model appears to be a focused asset, funding and income strategy. Banks’ organizational forms play a role; branches may be preferable to subsidiaries prior to the financial crisis, whereas bank subsidiaries perform better than branches during the financial crisis. However, branches diversified in assets, funding and income exploit efficiency advantages during the financial crisis. |
| Keywords: | Foreign banks,Organizational form,Branch,Subsidiary,Asset,Funding and Income Diversification,Financial Crisis,DEA Group-Efficiency,Heterogeneous Bootstrap |
| JEL: | C14 F23 G21 G28 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:qld:uqcepa:102&r=ban |
| By: | de Haas, R.T.A. (Tilburg University, Center For Economic Research); Bos, J.; Millone, Matteo |
| Abstract: | We exploit detailed data on approved and rejected small business loans to assess the impact of the introduction of a credit registry in Bosnia and Herzegovina. Our findings are threefold. First, mandatory information sharing tightens lending at the extensive margin as more applications are rejected, in particular in areas with strong credit market competition. These rejections are increasingly based on hard information—especially positive borrower information from the new registry—and less on soft information. Second, lending standards also tighten at the intensive margin: the registry leads to smaller, shorter and more expensive loans. Third, the tightening of lending along both margins improves loan quality. Default rates go down in particular in high competition areas and for first-time borrowers. This suggests that a reduction in adverse selection is an important channel through which information sharing affects loan quality. |
| Keywords: | information sharing; credit market competition; hazard models |
| JEL: | D04 D82 G21 G28 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiucen:2e27a9e9-2d06-48ea-ae43-5be37f62d314&r=ban |
| By: | Monica Billio (Department of Economics, University Of Venice Cà Foscari); Roberto Casarin (Department of Economics, University Of Venice Cà Foscari); Michele Costola (Department of Economics, University Of Venice Cà Foscari); Andrea Pasqualini (Department of Economics, University Of Venice Cà Foscari) |
| Abstract: | The purpose of this paper is the construction of an early warning indicator for systemic risk using entropy measures. The analysis is based on the cross-sectional distribution of marginal systemic risk measures such as Marginal Expected Shortfall, Delta CoVaR and network connectedness. These measures are conceived at a single institution for the financial industry in the Euro area. We estimate entropy on these measures by considering different definitions (Shannon, Tsallis and Renyi). Finally, we test if these entropy indicators show forecasting abilities in predicting banking crises. In this regard, we use the variable presented in Babeck? et al. (2012) and Alessi and Detken (2011) from European Central Bank. Entropy indicators show promising forecast abilities to predict financial and banking crisis. The proposed early warning signals reveal to be effective in forecasting financial distress conditions. |
| Keywords: | Entropy, systemic risk measures, early warning indicators, aggregation. |
| JEL: | C10 C11 G12 G29 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2015:09&r=ban |
| By: | Kellee Tsai (Division of Social Science, Hong Kong University of Science and Technology; Division of Political Science, Johns Hopkins University; Institute for Emerging Market Studies, Hong Kong University of Science and Technology) |
| Abstract: | Small and medium enterprises (SMEs) represent the backbone of China's economy, yet they lack access to bank credit. SMEs thus rely on a wide range of alternative sources, including informal finance, online peer-to-peer (P2P) platforms, registered non-banking financial institutions (NBFIs), and underground financiers. This paper distinguishes among different types of 'shadow banking' to clarify popular misconceptions about the nature of risks associated with informal financial intermediation in China. The evolution of SME finance in other contexts suggests that regulated and well-managed NBFCs provide an enduring foundation for commercialised financial intermediation even in advanced industrialised economies. |
| Keywords: | China, shadow banking, informal finance, financial development |
| JEL: | G23 G21 O17 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:hku:wpaper:201524&r=ban |
| By: | Sasidaran Gopalan (Institute for Emerging Market Studies, Hong Kong University of Science and Technology) |
| Abstract: | Dr. Sasidaran Gopalan, an HKUST IEMS Post-Doctoral Fellow, examines some of the multi-dimensional implications of foreign bank entry in emerging markets. Foreign banks have been growing in importance in several emerging market economies and they are expected to play systemically important roles moving forward. As emerging markets and developing economies (EMDEs) continue to liberalise their bank-based financial systems, foreign banks can be expected to play systemically more important roles. In this context, there is an urgent and ongoing need for countries to assess the cost-benefit tradeoffs of foreign bank entry and design appropriate policies to maximise the net gains while minimising the risks associated with this form of financial liberalisation. |
| Keywords: | financial liberalisation, emerging markets, foreign banks, foreign bank entry |
| JEL: | F36 G21 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:hku:briefs:201504&r=ban |
| By: | Rafael Aigner (University of Bonn); Felix Bierbrauer (University of Cologne) |
| Abstract: | How do taxes in the financial sector affect economic outcomes? We analyze a simple general equilibrium model with financial intermediation. We formalize a trade-off between tax policies that burden the owners of banks and tax policies that burden households. We also study the implications of the financial sector's exemption from value added taxation (VAT). Main results are that an increased taxation of the banks' profits goes together with a larger financial sector, as measured by the volume of loans and the employment in banking. We also show that the general presumption that the VAT-exemption is beneficial for banks is unjustified. |
| Keywords: | Taxation of the financial sector, Financial activities tax, Value added taxation |
| JEL: | H21 G21 H22 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2015_07&r=ban |
| By: | Irina-Raluca Badea (University of Craiova, Faculty of Economics and Business Administration) |
| Abstract: | The aftermath of the global financial crisis revealed the weaknesses of the financial system and the monetary incentives to be taken into consideration by the policy-makers. Whether it is exposed to specific risks or to systemic risk, the banking system has to be heavily regulated in order to prevent it from collapsing. The macroprudential regulation promotes the stability of the financial system as a whole, and also treats systemic risk as a trigger of a chain reaction caused by the interlinkages in the financial system. Therefore, this paper outlines the role of the macroprudential regulation for achieving the financial stability goal in the context of systemic turbulences. The safeguarding of financial stability should not be understood as a zero tolerance of bank failures or of an avoidance of market volatility but it should avoid financial disruptions that lead to real economic costs.On the one hand, an overlook on the progress of the prudential regulation points out the procyclical aspects of the regulatory requirements so far, such as capital requirements, risk assessment, provisioning; on the other hand, the present paper identifies the improvements of the most recent recommendations on banking regulations, embodied in the Basel III Accord. Hence, the Basel III requirements in terms of capital adequacy, liquidity, the capital and conservation buffers against procyclicality represent unquestionable improvements for the macroprudential regulation. Given the fact that Basel III has established phase-in arrangements from 2013 to 2019, it is important to analyze the progress of its implementation and its impact on the banking system resilience. *This work was cofinanced from the European Social Fund through Sectoral Operational Programme for Human Resources Development 2007-2013, under the project number POSDRU/159/1.5/S/140863 with the title „ Competitive Researchers in Europe in the Field of Humanities and Socio –Economic Sciences. A Multi-regional Research Network”. |
| Keywords: | financial stability, systemic risk, banking system, Basel III requirements, regulation |
| JEL: | E52 E58 G01 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:1003921&r=ban |
| By: | Padmavathi Koride (Indian Institute of Science); Anjula Gurtoo (Indian Institute of Science) |
| Abstract: | Microfinance bridges the credit gaps that formal financial institutions, like banks, are unable to meet for the rural populations. Micro Finance Institutions (MFIs) like Grameen Bank in Bangladesh, Bank Rakyat Indonesia and BancoSol in Bolivia have brought small credit, savings and other financial services within the reach of millions of financially excluded poor and uneducated.This paper explores the workings of this credit market and the underlying strategies in borrowing and repayment in India through a primary field survey of 829 rural borrowers in four districts of the Indian states of Andhra Pradesh and Telangana. The paper seeks to answer the following four questions, namely, Do rural borrowers plan their borrowings? Does the purpose of credit decide the source of credit? Is there a demand and supply elasticity in credit market? Would mortgage borrowing behave differently?Results, using regression models, show a link between borrowing behavior and the purpose of credit.•Source of credit does depend upon the purpose of borrowing. Agriculture and business investment loans are more likely to be sourced from formal sources, and education and health loans, from informal sources. Loans for agriculture might be sourced from banks only in part, or may not be supplied in time for cropping season, forcing borrowers to approach money lenders•The demand elasticity is minimal. Interest rates do not seem to impact borrowing, except for mortgage borrowing. More so for lifecycle needs like health and consumption, where all classes of borrowers borrow.•Mortgage borrowers drop their investment plans during time-lag between application and approval of loans, pointing to supply-side constraints•Small and marginal land-holders borrowing for mortgage, are likely to pay higher interest rate for money-lenders’ loans. This shows that lenders follow a price rationing of credit to low collateral borrowers. That farmers and business investors default on money-lenders’ loans shows that the latter, may have financed their investment in part. This shows that they do not get as much loan as applied for, from banks, pointing to size-rationing of credit.The results show a clear debt-trap where borrowers could be borrowing from one source to repay another, or may be resorting to multiple borrowings for the same purpose, as predicted by Jain and Mansuri (2008), who observe that moneylenders finance loan installments. |
| Keywords: | Credit; Purpose; Borrower; Behavior; India |
| JEL: | A14 C10 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:1003840&r=ban |
| By: | Shanuka Senarath (Griffith University) |
| Abstract: | Most of the blame for the present Global Financial Crisis (GFC) has been attributed to securitization and CDSs in the years preceding growth of the crisis. On reflection, most of the blame must be “sheeted home” to the former U.S government’s mandate to banks and other financial institutions to mitigate their normal lending criteria on U.S home loans. The fundamental problem with these securitization contracts was not the securitization of good loans, but the securitization of “lemons”. The loans should have never been entered into in the first place. The “failure” of securitization contracts was therefore a failure of well-intended (but poor) government policy makers in foreseeing the unintended consequences. In order to “insure” against expected defaults, the lenders and the investors entered CDS contracts in the shadow banking sector. The fundamental problem with the CDS contracts which are much touted in the regulated and shadow banking sectors as being “desirable” as a profitable form of “insurance”, was that they were (and are) able to be used for wagering or betting purposes. In contrast to the conventional insurance, CDS contracts do not require an insurable interest; do not require compliance with the indemnity principle; and are not uberrima fides. |
| Keywords: | Credit Default Swaps, Securitization, Global Financial Crisis |
| JEL: | G01 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:1003072&r=ban |
| By: | Pushkar Maitra (Department of Economics, Monash University); Sandip Mitra (Sampling and Ocial Statistics Unit, Indian Statistical Institute); Dilip Mookherjee (Department of Economics, Boston University); Alberto Motta (School of Economics, University of New South Wales); Sujata Visaria (Department of Economics, Hong Kong University of Science and Technology; Institute for Emerging Market Studies, Hong Kong University of Science and Technology) |
| Abstract: | IEMS Faculty Associate Prof. Sujata Visaria and colleagues explore how microfinance programmes can be fine-tuned to more effectively address the microcredit promise of financial inclusion and helping the poor. |
| Keywords: | micro finance, microcredit, microfinance, agent-intermediated lending, financial inclusion, India |
| JEL: | G21 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:hku:briefs:201503&r=ban |
| By: | Agarwal, Vikas; Ruenzi, Stefan; Weigert, Florian |
| Abstract: | We develop a new tail risk measure for hedge funds to examine the impact of tail risk on fund performance and to identify the sources of tail risk. We find that tail risk affects the cross-sectional variation in fund returns, and investments in both, tail-sensitive stocks as well as options, drive tail risk. Moreover, managerial incentives and discretion as well as exposure to funding liquidity shocks are important determinants of tail risk. We find evidence that is consistent with funds being able to time tail risk exposure prior to the recent financial crisis. |
| Keywords: | Hedge Funds, Tail Risk, Portfolio Holdings, Funding Liquidity Risk |
| JEL: | G11 G23 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:usg:sfwpfi:2015:08&r=ban |
| By: | Francesca Parpinel (Department of Economics, University Of Venice Cà Foscari) |
| Abstract: | In the literature of risk analysis different synthetic indices are built on the bases of some indicators and in this work we propose to use, alternatively to PCA, a combination statistical procedure. The univariate indices that we use are those proposed by _V-lab_ using a nonparametric combination of dependent rankings. The combination technique may also be considered to perform nonparametric inference, suitable to the treatment of non gaussian distributions as in the case of indices. So we propose to highlight systemic risk in a network of companies performing a nonparametric test to reveal heterogeneity behaviour; in this case the rankings may be used to create different behavioural groups. |
| Keywords: | Systemic risk, ranking, nonparametric combination |
| JEL: | C12 C38 C43 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2015:08&r=ban |
| By: | Andrey Itkin; Alexander Lipton |
| Abstract: | This paper considers mutual obligations in the interconnected bank system and analyzes their influence on joint and marginal survival probabilities as well as CDS and FTD prices for the individual banks. To make the role of mutual obligations more transparent, a simple structural default model with banks' assets driven by correlated multidimensional Brownian motion with drift is considered. This model enables a closed form representation for many quantities of interest, at least in a 2D case, to be obtained, and moreover, model calibration is provided. Finally, we demonstrate that mutual obligations have to be taken into account in order to get correct values for model parameters. |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1505.02039&r=ban |
| By: | Tetsuo Kurosaki (Bank of Japan); Yusuke Kumano (Bank of Japan); Kota Okabe (Bank of Japan); Teppei Nagano (Bank of Japan) |
| Abstract: | There is no single, widely-accepted definition of "market liquidity" even though the expression "market liquidity is high/low" is frequently used, and measuring market liquidity is not easy. Recognizing these challenges, this paper formulates a set of new liquidity indicators using transaction data of the markets related to Japanese government bonds (JGBs), including futures, cash, and special collateral (SC) repo, thereby examining market liquidity from various angles. Traditional liquidity indicators of the JGB futures market such as the bid-ask spread and the daily price range to transaction volume ratio suggest that liquidity in the JGB market has not declined significantly, even after the expansion of quantitative and qualitative monetary easing (QQE) in October 2014. However, the indicators newly formulated in this paper -- the volume of limit orders at the best-ask price, the impact of a unit volume of transactions on the market price in the JGB futures market, the divergence in quotes offered by dealers in the JGB cash market, and the lending fee of JGBs in the SC repo market -- all suggest that liquidity in the JGB market has been declining since fall 2014. While this may be a temporary phenomenon following the rapid decline in the long-term yield observed after the expansion of QQE as well as the short- and medium-term yields turning negative, it may also reflect other factors such as the massive purchases of JGBs by the Bank of Japan, structural changes in the markets, and regulatory changes. These findings underscore the need to monitor liquidity in the JGB market continuously and from many sides, using various indicators. In addition, it is important to enhance dialogue with market participants, thereby carefully monitoring the market's view on liquidity, which does not show up in the aforementioned indicators. |
| Keywords: | JGB market; market liquidity; transaction data; SC repo |
| JEL: | C32 G12 G14 |
| Date: | 2015–05–08 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:wp15e02&r=ban |
| By: | Kellee Tsai (Division of Social Science, Hong Kong University of Science and Technology; Division of Political Science, Johns Hopkins University; Institute for Emerging Market Studies, Hong Kong University of Science and Technology) |
| Abstract: | The Xi-Li administration faces the dual challenge of managing state capitalism and shadow banking as China enters a phase of more moderate economic growth. During China's first three decades of reform, private sector development occurred in parallel with prioritization of state-owned enterprises in strategic industries, and growth surged. This pattern of state capitalism rested on an unarticulated bifurcated financing arrangement whereby the formal banking system primarily served public enterprises, while private businesses relied primarily on informal finance. However, China's response to global financial crisis disrupted the preceding equilibrium of financial dualism under state capitalism. Unprecedented expansion of bank lending after 2008 created opportunities for a host of state economic actors- including SOEs, state banks, and local governments—to expand their participation in offbalance sheet activities. |
| Keywords: | China, state capitalism, informal finance, shadow banking, financial development |
| JEL: | G23 G21 O17 P16 P26 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:hku:wpaper:201525&r=ban |
| By: | Nils Jannsen |
| Abstract: | I empirically analyze the dynamics of business investment following normal recessions (declines in business investment that are not associated with banking crises) and banking crises. Using a panel of 16 advanced economies, I find evidence for significant non-linear trend reversion or bounce-back effects on the level of business investment following normal recessions, i.e., the deeper the previous recession was, the higher the growth rate of business investment will be. The trend reversion effect is absent when a decline in business investment is associated with a banking crisis. As a consequence, normal recessions do not have significant permanent effects on the level of business investment, whereas banking crises have large and significant permanent effects. The results are in line with important theories and other empirical results on business cycle dynamics |
| Keywords: | Business investment, business cycle, recovery, banking crises, asymmetries |
| JEL: | E32 C33 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1996&r=ban |
| By: | Onali, Enrico; Ginesti, Gianluca |
| Abstract: | While there is a vigorous academic and policy debate about the implications of the Incurred Loss Model (ILM) for financial stability, there is no empirical evidence on whether the new Expected Loss Model (ELM) introduced by IASB benefits international investors. We address this relevant issue by investigating the price reaction to announcements related to the impairment rules incorporated in IFRS 9 on a sample of 137 European listed banks for the period from November 2009 to July 2014. We provide evidence that the abnormal returns related to these events are substantially uncorrelated with proxies of timely loss recognition, earnings management, and capital management, suggesting that the new ELM is not perceived to bring about substantial benefits as compared to the ILM. These results are robust to confounding events, international media coverage, and winsorizing techniques. Bootstrap analysis supports the hypothesis that significant results for some of the events and some of the proxies may be due to over-sized tests for the sample period under examination. Our findings shed light on a recent claim in the literature that the quality of financial statements bears at best second-order effects on firm value. |
| Keywords: | earnings management; IFRS 9; impairment; loan loss provisions; stock market reaction |
| JEL: | G1 G2 M4 M41 |
| Date: | 2015–01–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:64266&r=ban |
| By: | Mariana Nedelcu (Bunea) (Bucharest University of Economic Studies) |
| Abstract: | At the European level - and even global – the prolonged economic and financial crisis was a challenge for the financial institutions, negatively affecting the banking system and beyond. The impact of the global crisis has affected gradually overwhelmingly the profitability of the banking industry, affecting all types of banking products and services offered to the customers, the models of supervision and the evaluation methods known so far. The audit function has an important role in the corporate mechanism, especially by extra value conferred to the governance process, so who, over time, this issue was debated assiduously in a series of studies and analysis on information transparency at the level of companies.The purpose of this article is to provide a more comprehensive analysis of the relationship between the quality of external audit and the financial performance, the solvency and requirements of capital adequacy at risk at the level of the Romanian banking system. Thus, concentrating attention on the quality of external audit, we tried to find answers motivated by the empirical analysis results to the general question "How influences the quality of external audit the performance of the banking system? How is the value added by the quality of external audit at the level of credit institutions?".In order to test the formulated hypotheses, the research methodology used is mainly quantitative, based on a statistical analysis deductive and having as starting point the agency theory having as objective the testing and possible links from cause - effect, and also analyzing the significance level thereof. |
| Keywords: | corporate governance, banking system, solvency, audit |
| JEL: | G20 G30 M40 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:1003389&r=ban |