Capital Risk Research Articles

The Influence of Financial Risk on the Financial Performance of Commercial Banks Listed on the IDX

This study aims to analyze financial risks, including capital risk, liquidity risk, and operational risk, in relation to financial performance, measured by return on assets (ROA) and return on equity (ROE). The study also includes bank size as a control variable in assessing financial performance. The research employs purposive sampling to select samples, focusing on conventional commercial banks listed on the Indonesia Stock Exchange (IDX) over a five-year period from 2019 to 2023. Data were collected from 33 banks and analyzed using descriptive statistics and a fixed effects model for hypothesis testing. Data analysis was conducted through panel data regression analysis using E-views 9.0. The findings of this study indicate that (1) capital risk does not impact financial performance, (2) liquidity risk has no effect on financial performance, (3) operational risk has a significant negative effect on financial performance, and (4) bank size does not influence financial performance. Based on this research, it is recommended that banks thoroughly evaluate operational risks. Future researchers are encouraged to include additional independent variables and extend the sample period for more accurate results.

Using a natural capital risk register to support the funding of seagrass habitat enhancement in Plymouth Sound.

By assessing the risk to the status of seagrass assets through this approach, it is possible to determine the complementary governance actions needed to underpin investment in seagrass habitat enhancement. The methods are transferable to other locations where data exists to define the asset status. These specific findings are relevant nationally where similar vectors of risk (pressures) are identified.

The effect of flood risk on house prices in the Basque Country

We analyze property prices, including both sales and rents, in relation to climate change-associated flood risk arising from sea level rise and river overflow. Our body of evidence consists of sale and rent offered prices in the Basque Country from 2007 to 2017, totaling over 329,000 observations. Our quantitative methods depart from those in other studies by using the ratio of sale to rent prices, deemed more likely to reflect the effects we are investigating. We use geographically weighted regression (GWR) with neighborhoods tailored to risk areas. Our findings provide some evidence of risk capitalization, although limited to areas of higher risk.

Identifying crucial financial markets in the flows of cross-border capital – evidence from China's financial risk network

With the increasing openness of China's financial markets, it is important to address cross-border capital risks. This paper first calculates the stress indicators of financial markets by 24 variables, and then utilizes the Diebold-Yilmaz connectedness approach to examine the spillover effects among the volatility of cross-border capital and the stress indicators of various financial markets. We show both the real estate and stock market are crucial for cross-border capital flow. Using the rolling window method, we find significant time-varying spillovers between cross-border capital and financial markets, which peak during the periods with significant events such as the global financial crisis, the COVID-19 epidemic, and the shift in currency regime. This paper further applies the Markov-switching autoregressive model to identify three different states for the synthetic financial stress. After re-analyzing the subsample data, we observe that stock and real estate markets play significant roles in the low-stress state, foreign exchange and real estate markets in the medium-stress state, and stock and money markets in the high-stress state.

Is human capital risk lower in state-owned enterprises? — A textual analysis based on China's listed company annual reports

Based on the annual reports of China's A-share listed companies from 2007 to 2020, this paper constructs a human capital risk index of China's listed companies through the methods of machine learning and explores the impact of state ownership on corporate human capital risk. The results show that compared with non-state-owned enterprises (non-SOEs), state-owned enterprises (SOEs) have lower human capital risk in China. Mechanism tests suggest that SOEs can offer higher compensation and benefits and maintain more stable employment relationships, which reduce human capital risk significantly. Additionally, this effect is more pronounced during periods of high economic policy uncertainty, in regions with weaker talent policies, and in areas with a lower proportion of aging labor force. The study also reveals that SOEs have lower human capital attraction and human capital retention risk than non-SOEs. Furthermore, SOEs have more educated and skilled employees, which contributes to higher human capital. Last, this study finds state ownership enhances innovation output, total factor productivity, and economic value added by mitigating human capital risk.

Impact of Financial Risk and Macro-Economic Variable on Stock Return: Evidence from Commercial Banks of Nepal

This paper examines the impact of financial risks and macroeconomic variables on the stock returns of commercial banks in Nepal. The study focuses on four main types of financial risks: credit risk, market risk, capital risk, and liquidity risk, alongside bank size, return on assets (ROA), and dummy variables for COVID-19 and earthquake impacts. Additional macroeconomic variables include economic growth, inflation, and interest rates. Using panel data regression on yearly data over 11 years for 20 commercial banks, the study investigates these factors' causal impacts on stock returns. The findings indicated that capital risk and liquidity risk negatively affect stock returns, suggesting that higher capital adequacy ratios limit high-risk, high-return investments, and higher liquidity risks lead to financial instability. Credit risk and market risk, however, did not impact stock returns. Larger banks faced negative stock returns, likely due to management complexities and inefficiencies. Economic growth and inflation positively impacted stock returns, reflecting economic optimism and increased activities, while higher interest rates negatively affected returns by increasing borrowing costs. The COVID-19 pandemic had a positive impact due to increased stock market activity amid limited investment opportunities, whereas the 2015 earthquake negatively affected returns as efforts focused on rebuilding. These insights underscore the need for robust risk management and consideration of broader economic conditions in investment and policy decisions.

Multi-attribute perceptual fuzzy information decision-making technology in investment risk assessment of green finance Projects

Abstract In the investment risk assessment of green finance (GF) projects, the application of multi-attribute perceptual fuzzy information decision technology is taken as the main research object. With the promotion of the concept of environmental protection and the development of green economy, the investment risk assessment of GF projects has become more and more important. However, this requires dealing with a large amount of fuzzy information and multi-attribute decision problems, which is a big challenge for traditional decision techniques. Based on this background, a new decision model, intuitionistic fuzzy preference theory-based tomada de decisão interativa multicritério (IF-PT-TODIM), is adopted, which can better deal with fuzzy information and multi-attribute decision problems by taking two different choices as reference. By knowing the weight distribution of experts, the model can better assess the influence of various factors on the decision. In the research results, the calculated results of expert weights are 0.2796, 0.2221, 0.1914, 0.1328, and 0.1745, respectively, showing that each expert has different degrees of influence on decision-making. In addition, the application of IF-PT-TODIM model can effectively reduce the investment risk. Compared with national bank of Kuwait, systematic review, evolutionary algorithm, the improved method can reduce the risk of venture capital by 28.14, 15.47, and 11.05%, respectively. This result further confirms the advantage of the IF-PT-TODIM model in dealing with fuzzy information and multi-attribute decision problems. This study has practical implications for understanding and improving the investment risk assessment of GF projects. It not only provides a new decision model for risk assessment, but also provides an effective method to deal with fuzzy information and multi-attribute decision problems. This provides new ideas and methods for the risk management of GF projects and also provides a new perspective and reference for research in related fields.

Is There a Chinese “Developmental peace”? Evidence from the Belt and Road Initiative’s Impact on Conflict States

ABSTRACT In the ten years since its inception, China’s Belt and Road Initiative (BRI) has attracted significant attention for its transformative impact on geopolitics, international developmental aid and the environment of member countries. A comparatively understudied aspect is the clustering of BRI investments in conflict-affected states. Here, the BRI’s impact is potentially even greater, but highly ambiguous: on the one hand, it is providing much-needed development financing to countries with unattractive risk profiles, thus potentially contributing to their stabilization. On the other, this influx of capital risks exacerbating antagonisms over resource distribution and project control, creating additional grievances resulting from a lack of oversight, and reigniting conflicts along existing political fault lines. This article examines the BRI’s transformative impact on conflict-affected states, by focusing on effects on local conflict dynamics, the legitimacy of governing institutions and outright political violence. It establishes general patterns of BRI investments and their conflict exposure, and investigates these dynamics in more detail through case studies on Pakistan and Myanmar. Finally, it analyzes which BRI-specific practices have shaped its conflict impact, and how these could be improved.

Stress Test of BPRS and BUS Capital for the 2014-2022 Period Using the ECL Approach

The operation of BUS and BPRS cannot be separated from the risks experienced, one of which is capital risk. The capital stress test used to calculate the capital adequacy of BUS and BPRS is the calculation of Expected Credit Loss (expected loan loss). ECL is the result of multiplying PD, LGD, and EAD. This study aims to determine the assessment and differences in capital stress tests using the ECL approach in BUS and BPRS. This research uses a descriptive quantitative approach. The method used is purposive sampling. The samples of this study were 12 BUS and 3 BPRS. The data used is secondary data in the form of annual financial reports taken from the official websites of BUS and BPRS for 2014-2022. The results of this study indicate that the assessment of the capital stress test using the ECL approach on BUS is classified as stage 1 (performing), and BPRS is classified as stage 2 (under-performing). A significant difference was found between BUS and BPRS.

THE IMPACT OF GREEN GOVERNANCE ON SUSTAINABILITY REPORTING & CORPORATE SOCIAL RESPONSIBILITY: FINANCIAL RISK AS MODERATOR

The present research endeavors to examine the effects of green governance namely board gender diversity, committee size, board independence, and board size, on corporate social responsibility and sustainability reporting. The study also considers the moderating effect of financial risk, including liquidity risk and capital risk. The data has been obtained from banking institutions in financial sector of Pakistan. Dataset comprises information from 33 banks that were included in our analysis. Convenience sampling technique was employed to gather the time series and cross-sectional data, which was utilized to construct panels in order to obtain desired outcomes. The results show significant and favorable relationship amid board's size & degree of independence when it comes to corporate social responsibility and sustainability reporting. There is a negative correlation amid presence of a board committee, board gender diversity and practice of sustainability reporting. Regression has confirmed consistent findings, indicating that both board size and board independence exhibit positive association with SRI & CSR, whereas board committee and board gender diversity show a negative link.

RISIKO KREDIT DAN MODAL SEBAGAI MODERASI LIKUIDITAS TERHADAP PROFITABILITAS BANK

Profitability is one measure of bank health. However, banks are required not only to pursue profitability but also to be careful in managing risks. Banks must maintain liquidity in order to fulfill their obligations. Credit and capital risks are related to bank liquidity. The higher the credit risk, the bank needs to provide reserve funds. When liquidity decreases, it can be increased with additional capital. This research looked at 45 commercial banks operating in Indonesia in the 2017-2022 period. Interaction term is measured by the absolute difference of variables. The test results show that there is a trade-off between liquidity and profitability, especially in banks with high capital.).

The Impact of Financial Risks on the Profitability of Absolute Investment Account Holders in Jordanian Islamic Banks: The Moderating Role of Market Share

This study aimed to test the impact of financial risks on the profitability of absolute investment account holders in Jordanian Islamic banks and the moderating role of market share. The study used a descriptive and analytical approach, relying on data from the Jordanian Central Bank statistics and annual reports of a sample comprising (3) banks for the period between (2012-2021 AD). Financial risks were measured through credit risks, liquidity risks, and capital risks, while market share was treated as a moderating variable. The profitability of absolute investment account holders was measured through deposit returns. The study found variability among Jordanian Islamic banks in the profitability of absolute investment account holders. The results showed no significant impact of financial risks (liquidity risks and credit risks) on the profitability of absolute investment account holders. The impact was confined to capital risks. The study recommended Islamic banks to increase regulatory capital and enhance market share, both in terms of funding sources (deposits) and providing a financing mix suitable for various investment sectors.

Operational Risk Measurement: An Optimal Timescale Selection Method Based on Information Entropy

Operational risk capital is typically allocated on an annual timescale in extant research, while ignoring that the dependence between operational risk events may differ on different timescales, such as semi-annual and quarterly. This study examines whether operational risk dependence structures differ on multiple timescales and proposes an optimal timescale selection method based on information entropy theory to obtain more reasonable operational risk measurement results. Different dependence modeling methods, including linear correlation and copula functions, are employed to analyze the dependence structures on multiple timescales. The information changes between different timescales are calculated to select the optimal timescale. The empirical analysis is based on 2,024 operational risk events from 1994 to 2017 in the Chinese Operational Loss Database (COLD), which is one of the largest external operational risk datasets for the Chinese banking industry. The results reveal significant differences in operational risk dependence at different timescales which affect the operational risk measurement results. Crucially, the quarterly timescale should be considered for more reasonable measurements. The findings provide important insights for considering a more reasonable allocation of operational risk capital under multiple timescale dependence.

Measuring Intangible Capital with Market Prices

Accounting standards prohibit internally created knowledge and organizational capital from being disclosed on firm balance sheets. As a result, balance sheets exhibit downward biases that have become exacerbated by increasing levels of intangible investments. To offset these biases, researchers must estimate the value of these off-balance sheet intangibles by capitalizing prior flows of research and development (R&D) and selling, general, and administrative (SG&A). In doing so, a set of capitalization parameters must be assumed (i.e., the R&D depreciation rate and the fraction of SG&A that represents a long-lived asset). We estimate these parameters using market prices from firm exits and use them to capitalize intangibles for a comprehensive panel of firms from 1978 to 2017. We then use a series of validation tests to examine the performance of our intangible capital stocks versus those developed from commonly used parameters. On average, our estimates of intangible capital are 15% smaller than estimates from status quo parameters while exhibiting larger variation across industry. Intangible capital stocks derived from exit price parameters outperform existing measures when explaining market enterprise values and identifying human capital risk. Adjusting book values with exit-based intangible capital stocks markedly attenuates well-documented biases in market-to-book and return on equity ratios while increasing the precision of the high-minus-low asset pricing factor. We conclude that our capitalization parameters create intangible stocks that perform equal to or better than status quo measures in various applications. This paper was accepted by Victoria Ivashina, finance. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2021.02058 .

Corporate Governance and Ownership Structure Effect on Corporate Social Performance: Evidence from Non-Financial Industries of Pakistan

This paper will examine the diversified associations between corporate governance and ownership structure impact on corporate social performance in dissimilar industries across Pakistan non-financial. The OLS models regression are estimation to using data from 2011 to 2020, that the non-financial industries of Pakistan. Corporate governance including board independence (BINDP), board size (BSIZE), and audit size and committee (A&COM), and structure ownership including, ownership managerial (MOWN), ownership family (FOWN), and ownership concentration (COWN), inspires of organizations corporate social performance with environmental and social risk market capitalization. Generally, the outcomes significant of ownership structure and corporate governance is recognized in industries of non-financial different at a joint level while examines the organizations with a risk whole risk market capitalization disclosure. That suggest to identifying the ownership structure and corporate governance can risk mitigate the market capitalization disclosure non-financial industries in term of correlation the corporate social performance improving and the developed the benefits with the calculation of identical female director in women on board and family ownership organizations (independent or executive) to the panel. This study also demand consideration to the corporate governance and improve structure ownership to enhance the corporate social responsibility in industries non-financial with market risk capitalization analysis, whereas risk control performance of industries analysis after complement by critical mass and independent directors properties.

Capital risk, fiscal policy, and the distribution of wealth

We develop a dynamic model economy where self-employed entrepreneurs allocate their net worth to their firm capital and risk-less government bonds, facing borrowing constraints, uninsurable labour endowment and capital depreciation risk. We derive a numerical approximation of the model’s equilibrium and compare it with a benchmark economy with no capital risk. Unlike labour endowment risk, capital risk reduces aggregate capital accumulation and wages and generates a positive risk premium. Low- (high-) net-worth entrepreneurs, whose consumption depends primarily on labour (financial) income, hold higher (lower) capital risk exposure. These patterns exacerbate inequality by increasing the share of financially constrained individuals and fattening the tails of the net worth distribution. Fiscal policy affects these outcomes by redistributing resources and affecting the risk premium. Capital tax cuts benefit more low- or high-net-worth entrepreneurs, depending on whether taxes on bonds or labour income finance them.

Risk Analysis of College Students' Entrepreneurship

As the employment of college students becomes more and more difficult, Many college students choose to start their own businesses after graduation. Self-employment of college students, apart from the initial capital risk, it will also face problems such as lack of social experience, mentality, vague understanding of entrepreneurship, and insufficient entrepreneurial rationality. College students can solve problems by understanding environmental changes, learning business management, mastering market trends and other methods and measures to promote the healthy development of college students' entrepreneurship.

Assessing the potential risks of climate change on the natural capital of six countries resulting from global warming of 1.5 to 4 °C above pre-industrial levels

We present the results from a new framework providing an assessment of how climate change risks to natural capital accrue with warming of 1.5–4 °C in six countries (China, Brazil, Egypt, Ethiopia, Ghana, and India). Unlike typical biodiversity and climate change studies, this assessment also considers landcover and population changes across a range of 17 ecosystem services. The potential impacts of climate change (alone) on natural capital at 1.5 °C is greatest in Brazil and least in Ghana. However, when population and landcover change are included, areas projected to be at high natural capital risk begin to accrue by 1.5 °C in all countries. By 2 °C, Ethiopia and Ghana show increasing areas at high risk, even though they are at low risk owing to climate alone. Thus, current impacts to biodiversity and ecosystem services and changes in potential demand coupled with warming exceed changes projected by climate alone. However, this also indicates that there is adaptation potential, especially with warming of < 2 °C, to reduce risk through restoring habitat. At lower levels of warming, targeted restoration of marginal agricultural habitats would increase the bank of natural capital for use by people and provide support for remaining agricultural lands. By 3 °C, the adaptation potential from restoration is substantially less: < 1% in Brazil, India and Egypt; 7–8% in China and Ethiopia; but still 26% in Ghana. This indicates that restoration as an adaptation option for biodiversity, and thus, natural capital, rapidly decreases with increasing temperatures. By 2100, factoring in population change (SSP2), current ecological footprint, and current landcover, even with only 1.5 °C warming, large parts of Brazil, eastern China, most of Egypt, much of Ethiopia, southwestern Ghana (except for protected areas), and most of India are at high to extreme natural capital risk with an adaptation deficit potentially equating to a soft adaptation limit.

Discrimination announcements, employee opinion, and capital structure: Evidence from the EEOC

AbstractThis paper investigates the impact of discrimination publicity on employee opinion. The findings suggest that employees reduce their sentiments toward the firm and its leaders when discrimination becomes public via Equal Employment Opportunity Commission (EEOC) announcements. Following the stakeholder theory of capital structure, the effect clusters in firms with above‐average leverage. Additionally, discrimination announcements increase accruals and the E index, reinforcing a culture of negative management at the firm. These results suggest that human capital risk plays a vital role in employee reactions to discrimination announcements.

Estimating Value at Risk and Expected Shortfall: A Kalman Filter Approach

Value at Risk (VaR) estimates the maximum loss a portfolio may incur at a given confidence level over a specified time, while expected shortfall (ES) determines the probability weighted losses greater than VaR. VaR has recently been replaced by (but remains a crucial step in the computation of) ES by the Basel Committee on Banking Supervision (BCBS) as the primary metric for banks to forecast market risk and allocate the relevant amount of regulatory market risk capital. The aim of the study is to introduce a more accurate approach of measuring VaR and hence ES determined using loss forecast accuracy. VaR (hence ES) is unobservable and depends on subjective measures like volatility, more accurate (loss forecast) estimates of both are constantly sought. Modelling the volatility of asset returns as a stochastic process, so a Kalman filter (which distinguishes and isolates noise from data using Bayesian statistics and variance reduction) is used to estimate both market risk metrics. A variety of volatility estimates, including the Kalman filter's recursive approach, are used to measure VaR and ES. Loss forecast accuracy is then computed and compared. The Kalman filter produces the most accurate loss forecast estimates in periods of both calm and volatile markets. The Kalman filter provides the most accurate forecasts of future market risk losses compared with standard methods which results in more accurate provision of regulatory market risk capital.