nep-isf New Economics Papers
on Islamic Finance
Issue of 2022‒02‒14
four papers chosen by

  1. Financial development and small firms’ tax compliance in Sub-Saharan Africa By Balde, Racky
  2. European bank profitability: the Great Convergence? By Martien Lamers; Thomas Present; Rudi Vander Vennet
  3. Climate Talk in Corporate Earnings Calls By Dzieliński, Michał; Eugster, Florian; Sjöström, Emma; Wagner, Alexander F.
  4. Agency Theory and Bank Governance: A Study of the Effectiveness of CEO's Remuneration for Risk Taking By Gérard Mondello; Nissaf Ben Ayed Smaoui

  1. By: Balde, Racky (UNU-MERIT, Maastricht University)
    Abstract: Lack of fiscal space in sub-Saharan Africa is a major preoccupation, particularly in the context of shocks. The majority of firms in the region are primarily in the informal sector and consequently do not pay taxes. This paper explores the effect of financial development on small firms’ compliance with value-added tax, profit tax and local tax. It equally explores the mitigating impact of informal finance on financial development’s role in driving small firms’ tax compliance. To demonstrate this, we estimate a recursive trivariate probit model. The results show that financial development increases the likelihood of firms being tax compliant. In contrast, access to informal finance decreases that likelihood. It also emerges that the lower the taxes, the greater the effects of low costs of banks on tax compliance. Another finding is that informal finance mitigates the effect of financial development on small firms’ tax compliance.
    Keywords: taxation, Africa, financial development, informal finance, informal economy
    JEL: D22 E26 H26
    Date: 2021–11–01
  2. By: Martien Lamers; Thomas Present; Rudi Vander Vennet (-)
    Abstract: Have Euro Area banks restored viability in the post-crisis era? We investigate profitability convergence for Euro Area banks over the period 2009-2020 using the concepts of ß and s convergence and a club clustering algorithm. Our evidence is consistent with a slow catch up of the weaker banks, but we also document that better performing banks converge towards a lower profit level, suggesting a ‘great convergence’ towards the middle. Moreover, we identify a cluster of banks exhibiting dismal profit dynamics, indicating the need for a restructuring of part of the Euro Area banking sector.
    Keywords: Euro Area banks, bank profitability, ß convergence, s convergence, club clustering analysis
    JEL: C38 G20 G21
    Date: 2022–02
  3. By: Dzieliński, Michał (Stockholm Business School, Stockholm University); Eugster, Florian (Mistra Center for Sustainable Markets (Misum)); Sjöström, Emma (Mistra Center for Sustainable Markets (Misum)); Wagner, Alexander F. (University of Zurich, CEPR, ECGI, and Swiss Finance Institute)
    Abstract: Climate change is a major concern for many companies, but it has not historically featured much in earnings conference calls. We find a marked increase in climate talk on these calls in recent years. We also find that climate talk is negatively related to the change in CO2 emissions (especially Scope 2) in the year after the call, particularly in firms with high overall environmental and governance ratings. Conversely, investors react particularly negatively to climate talk when it comes from a firm with low levels of ESG performance or following poor earnings performance. Finally, a firm employs more climate talk when it is more material, when there is greater shareholder pressure or when it is better prepared for climate-related disclosure. Overall, these results suggest that investors and other stakeholders interested in corporate climate action should be paying attention to earnings conference calls as a source of useful information about companies’ broader stance on climate-related issues.
    Keywords: climate talk; earnings calls; sustainability; CO2 emissions; greenwashing
    JEL: D83 G14 G34 G41 Q54
    Date: 2022–01–29
  4. By: Gérard Mondello (UCA - Université Côte d'Azur); Nissaf Ben Ayed Smaoui
    Abstract: This article studies the links between governance and risk-taking in banks. For the agency theory, when information are asymmetric, the disciplinary mechanisms of governance have a moderating effect on the remuneration policy and, consequently, the managers' choice concerning the balance between assets' revenue and risk. The following model shows that: i) The presence of effective disciplinary mechanisms does not reduce the latitude of managers to award themselves a high level of wages; ii) This binds the control of risk-taking through remuneration structures. Remuneration is not a determining factor in explaining risk-taking. iii) Contrary to the agency theory's teaching, excessive risk-taking is not induced by asymmetric information.
    Keywords: G2,G24,G3,G34 Agency theory,Bank governance,information asymmetry,CEO's remuneration,bank risk
    Date: 2021–12–26

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