Affiliated Banks Research Articles

Does state affiliation create information advantage to financial analysts

PurposeRecent studies have documented the significant influence of investment bank relationships on the forecast accuracy of affiliated analysts. However, the literature primarily focuses on investment bank-firm relationships, such as whether the investment bank has underwriter or lending relationships with firms. Little attention has been paid to the impact of investment bank-state relationships. To fill this gap in the literature, this paper investigates whether investment bank-state relationships create an information advantage for affiliated analysts.Design/methodology/approachWe empirically test the information advantage of state-affiliated analysts using a large sample of analyst forecasts from China spanning the period 2008 to 2020. Specifically, we investigate whether state-affiliated analysts issue more accurate and timely forecasts around macro events. To address endogeneity concerns, we examine instances where analysts move between state-affiliated and non-affiliated banks, as well as changes in the controlling structure of investment banks.FindingsWe find that state-affiliated analysts demonstrate greater accuracy in forecasts driven by macro events, indicating their information advantage. This effect is more pronounced under conditions of heightened economic policy uncertainty and closer ties between investment banks and the state. After transitioning to a non-state-affiliated investment bank, analysts no longer maintain the ability to make superior macro-event-driven forecasts. Conversely, when the investment bank's affiliation changes from non-state to state, financial analysts gain an information advantage following the establishment of new state affiliation. Additionally, state-affiliated analysts tend to issue more assertive forecasts in response to macro events, which are subsequently echoed by their peers. Furthermore, this information advantage is recognized by investors, enhancing stock price informativeness.Originality/valueFirstly, we contribute to the literature on the economic implications of state ownership in financial intermediaries. Secondly, we enrich the existing literature on financial analysts by acknowledging the pivotal role of investment bank relationships in shaping analysts' behaviors. Lastly, unlike existing literature that treats forecasts driven by macroeconomic events and those influenced by firm-specific events as a homogeneous category, this study contributes to the literature by innovatively categorizing analyst forecasts into two distinct types.

Perspicacity Customer Satisfaction of Online Banking: A Study in India

The usage of online banking by the banking sector has been expanding quickly as a practical and effective way to add value for customers. Faster and more dependable services for online consumers is one of the well-liked offerings from traditional banks. Online banking has the potential to draw in more clients to affiliated banks by taking use of the swift advancements in information technology. But the primary issue that providers of online banking are dealing with is that many bank customers are unwilling to use the services that are available for online banking. This occurred as a result of the fact that customers are still not satisfied with the services provided by online banking. A crucial component in assisting banks in maintaining their competitive advantages is customer satisfaction. Thus, the goal of this study is to identify and investigate the variables that affect customers' satisfaction with online banking. Customer satisfaction with online banking can be influenced by five factors: convenience, speed, security and privacy, web design and content, and service quality. 216 working adults who took part in the study were asked a series of questions (questionnaire), and their answers and comments on the aforementioned elements that affect customers' decisions to utilize online banking were very insightful. The study's findings revealed that the top three factors influencing consumers' satisfaction with online banking are ease of use, speed, and web design and content.

Cross-border banking and bank stability: evidence from Sub-Saharan Africa

AbstractBased on bank-level data from 29 Sub-Saharan African countries between 2005 and 2019, we apply panel fixed effects (FE) and two-step system GMM estimators to investigate whether increased cross-border banking affects domestic banking sector stability. We find significant evidence that the stability of banks in host countries declines with an increased presence of foreign banks—and the impact is more pronounced on banks that are small and less efficient. The stability impact of foreign banks is also found to depend on the quality of governance institutional factors in the host country. The findings shed some important insights on the downside of financial liberalisation policy in developing countries and the need for increased cross-border collaboration between home and host supervisory authorities in the SSA region—especially in jurisdictions where the foreign bank affiliates are systemically important. The domestic supervisory authorities thus need to effectively manage the inherent trade-off between reaping the benefits from international financial integration while effectively safeguarding domestic banking systems against cross-border contagion and fragility.

Sustainable Finance and Economical Profitability in Africa

African continent is facing a considerable demonstration of financial institutions and especially bank group which are dominating the banking environment. In the absence of developed financial markets, these bank organisations are at the centre of the economic activity. They are even the main financing source for companies, States, households and represent about 80% of African continent assets. This situation is encouraged by the organisational structure of those banks (subsidiary companies, representative offices, affiliated banks and branches) which permit a better representatively at the level of the continent. This research analyses the influence of sustainable finance principles on the economical profitability of 42 banking groups implanted in African continent between 2010 and 2020. Thus, data used are extracted from annual reports and were analysed through a time cross-sectional regression corrected for any latent heteroscedasticity and serial autocorrelation. At the end, the findings of this research are plural. firstly, green credits and transparency have a non-considerable impact on economical profitability. secondly, employee shareholding and gender diversity have a negative influence on economical profitability. thirdly, corporate environmental responsibility is negatively and highly correlated to bank economic profitability. Finally, philanthropy positively and highly affects economical profitability. One can therefore conclude that the profitability of sustainable finance is mitigated in Africa.

Bank affiliation and lottery-like characteristics of mutual funds

This study investigates the impact of commercial bank affiliation on mutual funds' lottery-like characteristics. Existing literature has extensively explored the benefits or costs of commercial bank affiliation in the asset management industry. Using a sample of Chinese mutual funds between 2003 and 2019, we reveal that bank affiliation significantly decreases these characteristics, and this phenomenon exhibits better performance. Our evidence suggests that affiliated funds benefit from information advantages. Notably, affiliated funds attract cash inflows by enhancing their performance rather than catering to investors’ lottery preferences. These results emphasize the role of gambling behavior in the mutual fund industry by focusing on the significance of ownership, in this case, by commercial banks.

DO POLITICALLY CONNECTED BANKS PERFORM BETTER IN A DEMOCRATIC ENVIRONMENT?

This paper elucidates the intricate relationship among bank performance, political connections, and the democratic environment. The existing body of evidence is notably limited in illustrating the impact of a democratic environment on bank performance. Our study examines a sample of 397 banks spanning 14 countries and districts, encompassing both politically affiliated and non-politically affiliated banks in both democratic and non-democratic settings. The empirical findings reveal a reduction in non-performing loans but an escalation in loan loss provision within a democratic environment. This phenomenon may be attributed to the diminished level of financial constraints prevalent in democratic settings. Furthermore, our investigation revealsthat political connections exert a deleterious effect on the non-performing loans (NPL) ratio, coupled with a salutary impact on loan loss provision. Conclusively, our research identifies that the stock return of politically connected banks in democratic environments is inferior to their counterparts in non-democratic environments. Additionally, the non-performing loans ratio (NPL) of politically connected banks in democratic environments tends to be higher compared to their non-democratic counterparts. Conversely, the loan loss provision of politically connected banks in democratic environments tends to be lower than that in non-democratic environments. This nuanced analysis contributes to a more comprehensive understanding of the interplay between democratic environments, political connections, and bank performance.

Bank affiliation and timing ability of mutual funds: Evidence from China

This study analyzes the impact of commercial bank affiliation on mutual funds' timing ability. In contrast to the findings for developed markets, affiliated funds outperform unaffiliated funds in China. Here, we explain affiliated funds' outperformance using 3,351 Chinese equity and hybrid mutual funds between 2008 and 2019 to demonstrate that affiliated funds are better timed than unaffiliated funds. One underlying mechanism is that affiliated funds benefit from information advantages due to the unique position of commercial banks in China's economy. Further findings reveal that better timing ability subsequently benefits commercial banking groups, indicating that commercial banks and affiliated funds share a mutual incentive compatibility relationship. A quasi-natural experiment of variations in bank affiliation verifies a causal interpretation of these findings, and our results continue to hold across a set of robustness tests.

Freeze! Financial Sanctions and Bank Responses

Abstract Using regulatory data, we study German bank lending in countries targeted by financial sanctions. We find that domestic banks in Germany reduce lending in sanctioned countries, whereas their foreign bank affiliates outside Germany increase lending. In some cases, this is because the bank affiliates’ host countries have not imposed sanctions themselves. However, even German bank affiliates in host countries that enact sanctions like Germany increase lending if these host countries lack strong institutions and anticrime policies. These findings suggest that even universally adopted sanctions distort bank capital flows and competition if the level of their enforcement varies across bank locations. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online

Bank affiliation and mutual funds’ trading strategy distinctiveness

This study investigates the effect of commercial bank affiliation on mutual fund trading strategy distinctiveness. We find that bank affiliation has a significantly positive relationship with mutual funds’ unique investment strategies, and this phenomenon exhibits better performance, supporting the benefits of bank affiliation. This association is most pronounced around macroeconomic releases, during high economic policy uncertainty periods, and among funds located within a close distance from their parent bank headquarters. Further analysis indicates that the more talented affiliated fund managers tend to pursue the distinctive strategy. Therefore, our evidence reveals that the underlying mechanisms are that affiliated funds own information advantages or hire more skilled fund managers due to the unique position of commercial banks in the economy. Finally, our results suggest that affiliated funds with a higher Strategy Distinctiveness Index attract stronger net inflows and are less exposed to risks. Our findings remain unchanged after several robustness tests.

Bank affiliation and discounts on closed-end funds

This study investigates whether investors value the bank affiliation of closed-end funds and analyzes whether investors treat funds differently because of their affiliated bank type, commercial or investment, and the size of their affiliated commercial bank, small or big. The analysis of the discounts on closed-end funds traded on Borsa Istanbul reveals that bank-affiliated funds trade at a lower discount than other funds, controlling for fund characteristics and market conditions. It is found that investors are willing to pay a higher price on funds affiliated with commercial banks, especially big ones, than bank-unaffiliated funds. However, discounts on all bank-affiliated funds increased more than discounts on unaffiliated funds during the banking crisis of 2000–2001 in Turkey suggesting that investors are willing to pay a trust premium to invest in funds that are affiliated with banks regardless of their type or size.

Affiliated bankers on board and firm environmental management: U.S. evidence

This study investigates whether and to what extent bank control over firms by their representation on boards of directors and by equity holdings through trust business may affect corporate environmental responsibility. Using a large sample of listed firms in the United States from 2004 to 2016, we find that banker directors with equity affiliation improve firms’ environmental performance scores and such impact is associated with affiliated bank’s shareholdings, investment horizon, and environmental orientation. Additionally, we document that the effects of bank control on firm’s environmental investments is stronger for firms with more short-term institutional investors but weaker for firms with more analyst coverage. Moreover, we find that when firms are financially constrained, banker directors reduce environmental investments. Finally, product-market competition matters for a firm’s environmental strategies as the relation of bank control and environmental investments is more profound under conditions of greater industry competition.

Does bank affiliation affect firm capital structure? Evidence from a financial crisis

PurposeThis study aims to assess the determinants of corporate debt with a particular focus on bank-affiliated and non-bank-affiliated firms during the global financial crisis.Design/methodology/approachThe authors analyse the data of 395 listed manufacturing firms from Pakistan with 2,370 firm-year observations. The sample is divided into subsamples, namely bank-affiliated, non-bank-affiliated and stand-alone firms. Fixed and panel effect regression models are applied to determine the during, pre-crisis and post-crisis effects on corporate capital structure.FindingsThe robust results of the study reveal that non-bank-affiliated firms have different leverage determinant behaviours with a greater reliance on size, tangibility and profitability. However, bank-affiliated firms seemed to show greater immunity from a crisis compared to other firms. Simultaneously, the stand-alone firms remained at a disadvantage subject to internal financial ties of group-affiliated firms and form a base of market imperfection.Practical implicationsThis study's findings imply that financial managers should contain better ties with financial institutions to enhance financial immunity in worse time of financial crisis or COVID-19 global calamity. On the regulation front, these findings call for critical policy regulations to govern the internal ties with financial institutions to create a level playing field for the corporate sector.Originality/valueTo the best of the authors’ knowledge, this study is the first to investigate determinants of corporate debt with a particular focus on bank-affiliated and non-bank-affiliated firms. This work is also novel to explore corporate debt of bank-affiliated and non-bank-affiliated firms during the financial crisis.

Multinational banks in regulated markets: Is financial integration desirable?

AbstractA core question regarding the increasing share of international trade in financial services is whether this causes banks to take more or fewer risks. We study this issue in a setting where two multinational banks engage in duopoly competition for their lending in two regional markets. Each bank affiliate can choose both the lending volume and the level of monitoring, and hence risk‐taking, where the risk of bank failure is partly borne by taxpayers in the bank affiliate's host country. Governments choose minimum capital requirements to optimally solve the trade‐off between higher lending volumes and consumer surplus, and the expected tax losses faced by taxpayers. In this setting, we consider two types of financial integration. A reduction in the transaction costs of cross‐border banking increases risk‐taking by banks, harming taxpayers and potentially overall welfare. In contrast, a reduction in the costs of screening foreign firms reduces banks' risk‐taking and is beneficial for consumers and taxpayers alike.

Investment Banks’ Research Activities in the Post-Reform Era: Are Analysts’ Conflicts of Interest Still Alive?

In this paper, we identify a channel where affiliated banks maintain a positive gap between the implied return (computed from target price) of the corporate client stock and that of the client’s peer. This behavior is triggered after the business deal disclosure when investment banks, including those sanctioned in the Global Research Settlement Act, are most likely to exploit such conflicts. The client’s high institutional ownership and target prices issued in isolation exacerbate the implied return gap. We show that the subsequent sanctions incurred for the violation of Financial Industry Regulatory Authority’s rules effectively discourage the affiliated investment banks to favor their corporate clients via the client-peer channel.

Small business debt financing: the effect of lender structural complexity

PurposeSmall- and medium-sized enterprises (SMEs) depend on a large measure on commercial banks for external capital, and US SMEs are increasingly experiencing bank credit constraints and resorting to costly alternatives. The purpose of this paper is to investigate the impact of lender organizational complexity on SME financing shortfalls. In particular, it examines the credit shortage effects associated with the SME's reliance on bank holding company (BHC) owned, as opposed to independent, lenders.Design/methodology/approachBuilding on agency–theoretic rationales, the authors posit that both hierarchical and horizontal complexity associated with present-day BHC structures will diminish an affiliated bank's ability and willingness to properly underwrite SME credit needs. Consequently, they hypothesize that SMEs whose commercial lenders are BHC affiliates are likely to experience greater credit shortages. This hypothesis was tested using exhaustive financial data from a large and nationally representative sample of US SMEs.FindingsGreater SME reliance on loans from BHC lenders was found to be associated with a greater use of late trade–credit payments. The latter is an expensive form of financing and a generally accepted indicator of shortages in conventional (and cheaper) bank credit.Originality/valueDespite the evolution toward more complex bank organizational forms, especially among community banks, the implications for SME lending are not yet fully understood. This paper's contribution is to offer a first examination of the impact of post-deregulation BHC structures on SME financing shortfalls.

Do Affiliated Bankers on Board Enhance Corporate Social Responsibility? US Evidence

In this study, we examine whether and to what extent affiliated bankers on board may affect firms’ corporate social performance. Using a propensity score-matched sample from 2002 to 2016, we find that board directors from affiliated banks exert significantly positive influence on firms’ corporate social performance. Furthermore, board of directors from affiliated banks are negatively associated with firm investments in corporate social responsibility (CSR) activities when firms experience financial distress. Finally, we find that the effect of affiliated bankers on board on firms’ CSR performance depends on the affiliated banks’ CSR orientation, as affiliated banker directors from banks with higher CSR orientation have a stronger influence on firms’ investments in CSR activities. The results suggest that improving firm’s CSR performance is consistent with the affiliated banks’ interests.

Complexity of Global Banks and the Implications for Bank Risk: Evidence from Foreign Banks in Hong Kong

The complex nature of an overall banking group could potentially affect the riskiness of their affiliates through various channels, such as agency costs and diversification gains. This paper empirically investigates the effects of bank complexity of the global banks (in terms of their business activities and geographical locations) on the riskiness of their affiliates, using a confidential data set of foreign bank affiliates based in Hong Kong (FBHKs). Our empirical findings based on a panel regression model suggest that the complexity of global banks has significant effects on the riskiness of their foreign bank affiliates, but the effects differ between the two complexity dimensions. Specifically, a FBHK from a more business complex banking group tend to have higher risks, and the effect is likely to be attributable to an intensified agency problem. For the geographical complexity, there is tentative evidence to support the presence of both diversification and agency problems. However, the average effect on the riskiness of FBHKs is found to be less clear-cut. To strengthen the identification, we further employ an alternative difference-in-difference (DID) estimation approach. This approach exploits the exogenous decline in bank complexity of the parent group arising from the introduction of GSIB regulatory framework. The DID results are consistent with the findings identified from the panel regression model.

Complexity of global banks and the implications for bank risk: Evidence from foreign banks in Hong Kong

The complex nature of an overall banking group could potentially affect the riskiness of their affiliates through various channels, such as agency costs and diversification gains. This paper empirically investigates the effects of bank complexity of the global banks (in terms of their business activities and geographical locations) on the riskiness of their affiliates, using a confidential data set of foreign bank affiliates based in Hong Kong (FBHKs). Our empirical findings based on a panel regression model suggest that the complexity of global banks has significant effects on the riskiness of their foreign bank affiliates, but the effects differ between the two complexity dimensions. Specifically, a FBHK from a more business complex banking group tend to have higher risks, and the effect is likely to be attributable to an intensified agency problem. For the geographical complexity, there is tentative evidence to support the presence of both diversification and agency problems. However, the average effect on the riskiness of FBHKs is found to be less clear-cut. To strengthen the identification, we further employ an alternative difference-in-difference (DID) estimation approach. This approach exploits the exogenous decline in bank complexity of the parent group arising from the introduction of GSIB regulatory framework. The DID results are consistent with the findings identified from the panel regression model.

DONETSK FINANCIAL INDUSTRIAL GROUPS CONSOLIDATION AT THE TURN OF THE XXI CENTURY

The article investigates the processes of the powerful financial industrial groups emerging in the Donbass region throughout the 1990-ies. It is stated that Donbass regional significance drastically raised with Ukraine’s gaining independence due to fuel resources concentrated in the region and critically important for state fuel and energy supplies. The research specifically focuses upon the miner unions movement, its role in gaining Ukraine's independence, its further evolution and impact it had upon the regional elite formation. The first Donetsk elite’s representative to ever acquire a top position in Kyiv was Yuhym Zviahilskiy, the Zasiadko mine’s former director. What boosted his rapid promotion was his cooperation with the Ukraine’s President Leonid Kuchma seeking allies for his fight with the Dniepropetrovsk clan. The whole variety of the turn-of-the-century financial industrial groups is arguably divided into the following categories: 1) source-based groups (emerging mostly around coal mining and ore extraction industries typical for the Donbass region); 2) defense industry-based groups with former Komsomol and Party leaders in charge; 3) groups based on legal and secretive agencies (mostly known for Victor Medvedchuk and Surkis brothers’ activities); 4) Pavlo Lazarenko’s proto-agrarian clan. The establishment of System Capital Management, Donbass Industrial Union, Altcom corporations is described with direct reference to Rinat Akhmetov, Serhii Taruta, Vitalii Haiduk, Borys Kolesnikov's roles in this process. The genesis of the groups under consideration is specified through their key industrial assets, affiliated banks, legal status, transregional and international expansion. The "old elite" (mostly related to the criminal syndicates) to the "new elite" (based on income legalization through financial industrial groups and international business) generational shift is explored. Three basic stages of Donetsk clan establishment have been identified: 1) the "mafiosi wars" of the first half of the 1990-ies; 2) consolidation and driving the "old guards" out of regional political and economic field (1995 - 1999); 3) the ultimate establishment of financial industrial groups pursuing their own economical and political interests (early 2000-ies). The author argues that continuous fights between the regional mafiosi groups searching for a common spokesman was one of the reasons for “the Donetsk gang’s” belated engagement into struggle for political influence and Ukraine’s finance and economic markets reallocation.

Global Banks and Interest on Excess Reserves

In this paper, we document a link between interest-on-excess-reserves (IOER) and global banks' internal capital markets. We find that foreign bank affiliates in the U.S. receive less funding from their parent banks when their home Central Bank increases the rate paid on excess reserves. We find a negative and statistically significant effect of IOER on the affiliate bank lending: a 100 basis points increase in the home Central Bank's rate on excess reserves is linked to a 2.3 percentage points decline in the U.S. credit provided by foreign bank affiliates. We exploit different organizational forms and IOER eligibility for identification. We also control for demand-side factors in a loan-level data in which borrowers have multiple lending relationships. We find that within a banking organization, the credit supply response is stronger in the affiliates that are smaller, have ex ante less profitable loans, and rely on parent bank funding. Taken together, these results are consistent with a novel channel of unconventional monetary policy where IOER crowds out global credit supply. We argue that the type of monetary policy framework matters.