nep-cfn New Economics Papers
on Corporate Finance
Issue of 2015‒08‒25
five papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. How is corporate governance in Japan changing?: Developments in listed companies and roles of institutional investors By Ryoko Ueda
  2. Realized Bank Risk during the Great Recession By Altunbas, Yener; Manganelli, Simone; Marques-Ibanez, David
  3. Systemic risk measures and macroprudential stress tests. An assessment over the 2014 EBA exercise By Chiara Pederzoli; Costanza Torricelli
  4. Disclosure of stress test results By Berlin, Mitchell
  5. From banks’ strategies to financial (in)stability By Simone Berardi; Gabriele Tedeschi

  1. By: Ryoko Ueda
    Abstract: This research analyses the improvements to corporate governance within Japanese listed companies and the influence of institutional shareholders. Firstly, in order to analyse the external factors that have promoted the recent corporate governance reform, the report starts with an overview of the changes in the Japanese market post 1970s. The main players before the 1990s were the banks, who provided credit to companies as well as being shareholders. Corporate governance in Japan was characterised by the “main bank” system. However, after the “bubble economy” burst in the early 1990s, institutional investors, including domestic pension funds and foreign asset managers, started to have a greater presence. Secondly, the report analyses the recent developments in corporate governance within listed companies. Developments were influenced considerably by institutional shareholders through proxy voting. Further, the report reviews the legislation and relevant rules on corporate governance including the reform of the Companies Act and the Cabinet Office Ordinance on Disclosure of Corporate Information. Thirdly, the report examines the influence of institutional shareholders and their activities towards good corporate governance. In 2009, the “Report by the Financial System Council’s Study Group on the Internationalization of Japanese Financial and Capital Markets” was published and asset managers, such as investment trusts and investment advisory companies, started to disclose policy and results of proxy voting. In February 2014, pursuant to the recommendation of the “Japan Revitalization Strategy 2013”, Japan’s Stewardship Code was published and it is now expected that institutional shareholders play a significant role to engage with investee companies and improve corporate governance within them. The report also analyses the historical changes to practices within shareholder meetings along with examination of the role that institutional shareholders have played in the improvement of corporate governance within Japanese listed companies.
    Keywords: shareholders, corporate governance, institutional investors
    JEL: G30 G32 G34 G38
    Date: 2015–08–07
  2. By: Altunbas, Yener (Bangor Business School); Manganelli, Simone (European Central Bank); Marques-Ibanez, David (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: In the years preceding the 2007-2009 financial crisis, forward-looking indicators of bank risk concentrated and suggested unusually low expectations of bank default. We assess whether the ex-ante (i.e. prior to the crisis) cross-sectional variability in bank characteristics is related to the ex-post (i.e. during the crisis) materialization of bank risk. Our tailor-made dataset crucially accounts for the different dimensions of realized bank risk including access to central bank liquidity during the crisis. We consistently find that less reliance on deposit funding, more aggressive credit growth, larger size and leverage were associated with larger levels of realized risk. The impact of these characteristics is particularly relevant for capturing the systemic dimensions of bank risk and tends to become stronger for the tail of the riskier banks. The majority of these characteristics also predicted bank risk as materialized before the financial crisis.
    Keywords: Bank risk; business models; Great Recession
    JEL: E58 G15 G21 G32
    Date: 2015–08–04
  3. By: Chiara Pederzoli; Costanza Torricelli
    Abstract: The European Banking Authority (EBA) stress tests, which aim to quantify banks’ capital shortfall in a potential future crisis (adverse economic scenario), further stimulated an academic debate over systemic risk measures and their predictive/informative content. Focusing on marked based measures, Acharya et al. (2010) provides a theoretical background to justify the use of Marginal Expected Shortfall (MES) for predicting the stress test results, and verify it on the first stress test conducted after the 2007-2008 crises on the US banking system (SCAP, Supervisory Capital Assessment Program). The aim of this paper is to further test the goodness of MES as a predictive measure, by analysing it in relation to the results of the 2014 European stress tests exercise conducted by EBA. Our results are strongly dependent on index used to capture the systemic distress event, whereby MES, based on a global market index, does not show association with EBA stress test, by contrast to F-MES, which is based on a financial market index, and has a significant information and predictive power. Our results may carry useful regulatory implication for the stress test exercises.
    Keywords: systemic risk, stress test, macroprudential regulation
    JEL: G01 G10 G28
    Date: 2015–07
  4. By: Berlin, Mitchell (Federal Reserve Bank of Philadelphia)
    Abstract: Should regulatory bank examinations be made public? Regulators have argued that the confidentiality of the examination process promotes frank exchanges between bankers and examiners and that public disclosure of examination results could have a chilling effect. I examine the tradeoffs in a world in which examination results can be kept confidential, but regulatory interventions are observable by market participants, as they typically are for stress tests. Inducing banks to communicate truthfully requires regulators to engage in forbearance, which is priced into banks’ uninsured debt and raises the costs of inducing truthful communication. Regulators that disclose exam results bear higher monitoring costs and impose excessive capital requirements because interventions are not as sensitive to underlying risks. My model predicts that disclosure is optimal when the regulator’s model is relatively inaccurate.
    Keywords: Stress tests; Disclosure; Bank regulation
    JEL: G2 G21 G28
    Date: 2015–08–13
  5. By: Simone Berardi (Economics Department, Universitat Jaume I, Castellón, Spain); Gabriele Tedeschi (Economics Dept-U. Jaume I & Dip. di Scienze Economiche e Sociali-U. Politecnica delle Marche)
    Abstract: This paper aims to shed light on the emergence of systemic risk in credit systems. By developing an interbank market with heterogeneous financial institutions granting loans on different network structures, we investigate what market architecture is more resilient to liquidity shocks and how the risk spreads over the modeled system. In our model, credit linkages evolve endogenously via a fitness measure based on different banks’ strategies. Each financial institution, in fact, applies a strategy based on a low interest rate, a high supply of liquidity or a combination of them. Interestingly, the choice of the strategy influences both the banks’ performance and the network topology. In this way, we are able to identify the most effective tactics adapt to contain contagion and the corresponding network topology. Our analysis shows that, when financial institutions combine the two strategies, the interbank network does not condense and this generates the most efficient scenario in case of shocks.
    Keywords: Interbank market, dynamic network, fitness model, network resilience, bank strategy
    JEL: G01 G02 D85
    Date: 2015

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