Asset Composition Research Articles

Can Dairy Value-Chain Projects Change Gender Norms in Rural Bangladesh? Impacts on Assets, Gender Norms, and Time Use

Value-chain projects are increasingly being used to link smallholders to markets. However, in contexts where women tend to own and control fewer assets than men, and are more likely to be involved in informal rather than formal market activities, there is potential for value-chain projects to have unintended consequences on gender dynamics. In particular, there is concern among project implementors regarding possible adverse effects for women in terms of shifting intrahousehold distribution of assets, gender norms, and household members’ time allocation to various activities. Using both quantitative and qualitative research methods, the Gender, Agriculture, and Assets Project (GAAP) worked with CARE-Bangladesh to assess the impact of the Strengthening the Dairy Value Chain Project (SDVCP) on (1) women’s ownership of assets, men’s ownership of assets, and jointly held assets; (2) gender norms around asset ownership and control; (3) gender norms regarding decisionmaking in these areas surrounding the dairy value chain; and (4) trade-offs and time costs involved in project participation.We find that participation in SDVCP had significant positive impacts on the composition of household assets. SDVCP participants increased the value of livestock assets, as well as the value of agricultural and nonagricultural productive assets, relative to nonparticipant households that were similar prior to the program. While participation in the program increased the value of men’s assets, it also increased the value of assets held jointly by men and women. This finding suggests that women were able to build up assets, not by acquiring assets that they exclusively owned, but by acquiring jointly owned assets.We also find that program participation tended not to affect who makes dairy-related decisions. Regardless of SDVCP participation, dairy-related decisions involving financial outlays or inflows were made by husbands, while those about allocation of milk not for sale were made by wives. However, SDVCP participation had a modest impact on men’s and women’s decisionmaking within the household, favoring greater participation of women in household decisions and greater control by women of money for household expenses. SDVCP also increased women’s mobility and ability to access value-chain services (input dealers, livestock health workers, milk collection points) both inside and outside the community.SDVCP participation also increased households’ time allocation to the specific dairy activities encouraged by the program, particularly activities related to livestock health and hygiene. This increase in time allocation was borne mostly by adult women. SDVCP also increased women’s time spent on dairy activities located within the homestead, while it increased adult men’s time spent on dairy activities that required leaving the homestead. There was no significant impact on young girls’ time devoted to dairy activities, but there was a small increase among young boys. We find that the increased allocation of adult women’s time for dairy activities came at the expense of their time in household activities, with young girls (but not boys) consequently increasing their time in domestic work.

Valuation and Risk Assessment of Participating Life Insurance in the Presence of Credit Risk

In participating life insurance, management decisions regarding the asset composition can substantially impact the value of a policy from the policyholders’ perspective as well as the insurer’s risk situation. Due to the long-term guarantees often embedded in these contracts, life insurers typically invest a considerable portion of their capital in long-term assets such as corporate and government bonds. Besides interest rate risk, the value of these bond investments is thus particularly influenced by credit (spread) risk. Thus, the aim of this paper is to examine the impact of market risk associated with the asset composition on fair valuation and risk assessment with focus on credit risk and its interaction with equity risk and interest rate risk. Our analysis emphasizes the strong tradeoff between higher coupon payments of lower grade bond portfolios and the increased credit risk as well as the interaction between credit risk, interest rate risk, and equity risk arising from the stock investments.

What Determines the Composition of a Firm's Total Cash Reserves?

Although financial managers spend significant time and effort deciding in which financial assets corporate cash reserves should be invested, we know surprisingly little about the determinants of the variation in the composition of the financial assets that constitute these reserves. We find that firms invest more of their cash reserves in longer-maturity, less liquid securities that earn a higher yield if they can better forecast their short-term liquidity needs. Also, financially constrained firms, which typically hold large cash reserves to meet longer-term financing needs, invest more of their cash reserves into such securities. During years when significant amounts of their cash reserves are needed to fund operations or new investment, financially constrained firms shift funds to shorter-maturity, more liquid securities that earn a lower yield. We use several different identification strategies to establish causality of our results. Our findings provide insights on an important component of corporate liquidity management practices.

The assets and liabilities gap management of conventional and Islamic banks in the organization of Islamic cooperation (OIC) countries

This article focuses on the short- and long-term assets and liabilities gap and the determinants of net interest/profit margins of both conventional banks and Islamic banks in the Organization of Islamic Cooperation countries over the period from 1997 to 2010. The results show that both conventional and Islamic banks have negative short-term gaps and positive long-term gaps. These indicate that banks use short-term deposits and funding to finance long-term loans, advances and investments, taking into consideration refinancing and reinvestment risks. The findings also show that operating cost is a significant determinant of bank margins and important factor to improve quality of management in banks. Overall, the conventional banks have better quality of assets and liabilities with an optimum composition of profitable assets and low-costs liabilities. The low bank margins in conventional and Islamic banks indicate low volatility in financial markets and the growth of banking business.

Factor Model Based Clustering Approach for Cardinality Constrained Portfolio Selection

Portfolio selection concerns identifying an optimal composition of various risky assets and their corresponding holding amounts such that the corresponding investment strategy strikes a balance between maximizing the expected investment return and minimizing investment risk. While market frictions make full diversification impractical, cardinality constrained mean-variance (CCMV) portfolio selection problem emerges as a natural remedy: Given an asset pool with total n assets and a given cardinality s < n , optimally choose s assets from the entire asset pool such as to achieve a mean-variance efficiency. Unfortunately, CCMV has been proved to be NP hard and has been posted in front of optimization society as a long-standing challenge. By invoking structural market information and utilizing fast clustering algorithm for classification, we develop in this paper an effective heuristic scheme to identify approximate solutions for large-scale CCMV problems. More specifically, by constructing grouping constraints generated from factor-model based clustering algorithm and attaching them to the mixed integer programming formulation associated with the CCMV problem, we are able to significantly reduce the computational complexity, thus offering a fast algorithm with relatively high quality solution.

Financial Risk Tolerance: A Literature Review

The construct of risk tolerance or an individual's attitude towards accepting risk has implications for financial service providers as well as investors. The financial service providers should be aware of the attitude and needs of their clients, including their investment objectives, investment experience and desired financial risk tolerance. A proper assessment of prospective investor's financial risk tolerance enables designing a heterogeneous but appropriate product mix of investment options, which aids in offering customised asset composition in a portfolio such that it is in accordance with the risk and return expectations of an individual. A number of studies have provided evidence of demographic and non-demographic characteristics related to the financial risk tolerance of individuals. The objective of this paper was to prepare a research summary on the basis of the findings of various research projects, which were designed to find out the impact of various demographic and socio-economic factors on financial risk tolerance. There has been plenty of research on impact of demographic and socio-economic determinants on financial risk tolerance. The review of literature suggests there is a persistent belief among practitioners and researchers that (a) older individuals are less risk tolerant than younger people, (b) men are more risk tolerant than women, (c) single individuals are more risk tolerant than married individuals and more number of dependents leads to decreased risk tolerance, (d) those employed professionally are more risk tolerant than non-professionals and self-employed individuals are more risk tolerant than salaried individuals, (e) individuals with greater income have greater risk tolerance than lower income earners, (f) greater educational attainment is associated with increased risk tolerance, (g) increased knowledge of personal finance leads to increased risk tolerance and (h) greater economic expectations are associated with greater levels of risk tolerance.

Debt Capacity of Real Estate Collateral

We study whether real estate assets have a greater positive influence on firm leverage than other tangible assets. Using a large sample of COMPUSTAT firms, we find a significant positive relation between tangibility and leverage in general, and the relation is strongest for real estate collateral. Furthermore, we find that the relation holds only for credit‐constrained firms, i.e., those likely to highly value the additional borrowing capacity of real estate. Our results imply that knowing the composition of a firm's tangible assets is important in understanding its leverage. Our findings could help explain why real estate investment trusts are relatively highly leveraged, even though debt offers them no tax benefit.

Convergence, capital accumulation and the nominal exchange rate

This paper develops a flexible price, two-sector growth model with a nominal side to study the role of the exchange rate in transition dynamics. We adopt a standard small open economy model with traded and nontraded goods, where the engines of growth are exogenous productivity improvements and capital accumulation. We enhance this standard framework by adding a preference for real money holdings, captured by money-in-the-utility. We follow Schmitt-Grohé and Uribe (2003) and assume that the interest rate on bonds issued by the small open economy is debt-dependent, and interpret it as a simple financial friction. We show analytically that the choice of the exchange rate regime influences the transition dynamics of a small open economy through the balance sheet of the central bank. We then calibrate the model to explore the quantitative significance of our results. We find that the choice of the exchange rate regime has significant and lasting effects on prices, consumption, investment and sectoral allocations, and the composition of financial assets.

Shadowy Banks and Financial Contagion during the Great Depression: A Retrospective on Friedman and Schwartz

This essay assesses whether network linkages within the banking system amplified the real effects of bank failures during the Great Contraction. In 1929, nearly all interbank deposits held by Federal Reserve member banks belonged to “shadowy” nonmember banks which were outside the regulatory reach of federal regulators. Regional banking panics in the early 1930s drained these interbank deposits from central reserve city banks. Money-center banks in Chicago and New York responded to volatile and declining interbank deposits by changing their asset composition. They reduced their lending to businesses and individuals, and increased their holdings of cash and government bonds.

Determinants of International Investment Position

Gross and net international investment position, measuring country’s relative position in international economic, significantly impact trade balance and exchange rate policy of a country, so deeper understanding of its composition is very important. In this paper, international investment positions for a selection of European transition countries have been analysed showing that foreign direct investments predominantly define countries' net position and international finance and that its key determinants are the level of development, domestic capital market and lift of restrictions on capital account. In other words, privatisation of former state-owned companies attracts foreign investors whose rising interest results in increase of countries' attractiveness in international markets.The structure of the paper is the following: the first part brings short introduction to concepts and linkages between balance of payments and international investment position which is followed by the description of national compilation practises for a selection of countries that have recently joined (EU: Czech Republic, Hungary, Poland, Slovak Republic and Slovenia) or are on the way to joining the European Union (nonEU: Bulgaria, Croatia, Romania). In the next section, estimation of quarterly data is followed by the exploration of determinants of the international financial integration, measured by the level and composition of external assets and liabilities. The text concludes with the section that offers concluding remarks and raises additional questions.

Conservatism measures that control for the effects of economic rents on stock returns

Recent studies show that regression-based estimates of accounting conservatism reflect both differences in the asymmetric recognition of bad news and differences in asset composition. In particular, a firm’s market value and returns reflect both assets-in-place and expected future rents, while book values tend to reflect only assets-in-place. We propose two tests that remove the effect of asset composition on cross-sectional comparisons of accounting conservatism. First, a test based on a ratio of regression coefficients allows for valid cross-sectional comparisons of conservatism relative to overall news recognition. Second, in some cases, researchers can separately identify and make cross-sectional comparisons of the fraction of good news recognized and the fraction of bad news recognized. The estimates in this second scenario use a regression of earnings on returns interacted with a book-to-market ratio. We validate our model by deriving and testing several predictions based on it.

Capital Account Policies and the Real Exchange Rate

Capital Account Policies and the Real Exchange Rate

Financial Attributes and Investor Risk Tolerance at the Nairobi Securities Exchange – A Kenyan Perspective

The inclination for optimizing returns by taking maximum risk has implications for both individual investors, as well as fund managers. For the former, risk tolerance will determine the appropriate composition of assets in a portfolio, which is optimal in terms of risk and returns relative to the needs of the individual. For fund managers, the inability to effectively determine investor risk tolerance may lead to homogeneity among investment funds. This paper investigates the extent to which financial attributes affect individual investor risk tolerance at the Nairobi Securities Exchange (NSE), Kenya. Financial attributes in this study were measured in two main aspects: individual monthly earnings income and home ownership. A sample of 500 Central Depository System (CDS) account holders was selected from a population of 932,510 investors at the NSE. Single independent variable cross tabulation on risk tolerance as well as paired cross tabulation on the dependent variable was performed. Analysis of variance was also used to determine how each group of the independent variable affects the dependent variable. Ordinal logistic regression model (OLRM) was employed to establish the contribution of financial attributes on risk tolerance. Single independent variable cross tabulation revealed that home owners were more risk tolerant than non owners. However, one way Analysis of Variance revealed that the variable had a P value of 0.710, hence not significantly affecting risk tolerance. The result of ANOVA on income was significant at a P value of 0.014 individual earnings, hence influences risk tolerance. Risk tolerance increased with earnings up to very high, except for those who earned more than 120,000 per month. OLMR fitted well with a significance level of 0.027 less than ?=5%, although it showed that home ownership is not a significant determinant at a P value of 0.761. For every single unit of home ownership for those with homes to those without, the expected log of odds increased by 0.060 as the threshold of risk tolerance increased, holding other factors constant. Income levels for those earning 90,000-120,000 per month showed a P value of 0.006, hence income was a major determinant of risk tolerance. For every single unit increase of investors earning 90,000-120,000, the expected ordered log of odds of risk tolerance reduced by 1.077 as the threshold of risk tolerance increased, holding other factors constant. Therefore fund managers, investment advisors and individual investors should consider the contribution of financial attributes in financial decision making.

The Development of Insolvency Proposals in the Czech Republic

This paper concerns the development of insolvency proposals in the Czech Republic in the period 2008–2011, with reference to the issue of solvency representatives of small and medium business. The aim is to analyse the number of insolvency proposals and to conduct a survey among leading representatives of the business environment. Since 2008, a number of problems have emerged, including decreasing demand and a number of fiscal measures (intended to stabilize public budgets, for example) that have been put into effect. One of the above mentioned problems is the growing number of insolvency proposals related not only to business units, but also to their customers, suppliers, and non-enterprising individuals. From a macroeconomic perspective, Korol and Korodi (2010) considered insolvency a positive sign of a free market, but from a microeconomic point of view, we can say that this is a negative attribute affecting both economic and social life (eg., a growing rate of unemployment). The success or downfall of the small and mediumsized business sector is affected by numerous factors that can be divided into two groups: endogenous factors (such as adequate or inadequate financial structure, appropriate or inappropriate composition of assets and liabilities) and exogenous factors (such as fiscal policy, monetary policy, and general economic conditions). Smrcka (2011a)provedthatthestateinfluencesthegrowthofgeneralindebtednessin various ways. Firstly, the governments’ relaxed response to the increase of indebtedness has created an atmosphere where debt is perceived as a standard solution to a lack of financial means. Moreover, the impacts can be detected in the policy of cheap money, which is aimed at supporting loans, investment, and boosting growth. As a result of these mechanisms, a period of constant and relatively dynamic growth in most developed economies did indeed come, but this was accompanied by several substantial price and investment bubbles, namely in the housing and stock markets. Smrcka (2011b )h as claimed that a substantial amount of evidence exists supporting the assertion that the change in the behaviour of modern families stems not only from the increased focus of banks on retail clients but also from the notion that indebtedness is an acceptable and natural model of behaviour, with modern states leading by their example.

The Impact of Funding Costs and Liquidity Risk on the Valuation of Derivatives and Banking Book Products

Traditionally derivatives and other assets have been valued in isolation. The balance sheet of which a derivative position is part, was not included in the valuation. Recently, aspects of the valuation have been revised to incorporate certain elements of the balance sheet in the valuation. Examples are the debt valuation adjustment which incorporates default risk of the bank holding the derivative, and the funding valuation adjustment that some authors have proposed to include the cost of funding into the valuation. This paper investigates the valuation of derivatives and other assets as part of a balance sheet. In particular, funding costs, default risk and liquidity risk are considered. A valuation framework is developed under the elastic funding assumption. This assumption states that funding costs reflect the quality of the assets, and any change in asset composition is immediately reflected in the funding costs. The paper generalizes the result of Nauta 2012 that funding costs do not have an impact on the value of derivatives to cases including default risk. Furthermore a new model for the valuation of liquidity risk is developed. The result is that the liquidity spread, that is used for discounting cashflows of illiquid assets, can be expressed in terms of liquidation value of the asset, and the probability that the institution holding the asset needs to liquidate (part of its) assets. The resulting model is similar to existing models that include fixed funding costs, such as Burgard Kjaer 2011, with the difference that the funding spread is replaced by the liquidity spread. This has some important consequences, since the liquidity spread depends on the product and e.g. the size of the position, whereas the funding spread does not. Examples for banking book products and OTC call options are included to illustrate the framework.

Another Look at Governments’ Balance Sheets: The Role of Nonfinancial Assets

When discussing debt reduction strategies, little attention has been given to the role of governments’ nonfinancial assets. This is in part because data are scarce. Drawing on various data sources, this paper looks at the size, composition, and management of state-owned nonfinancial assets across 32 economies, with particular focus on the advanced G-20 economies. We find that reported nonfinancial assets comprise mostly structures (such as roads and buildings) and,when valued, land. These assets have increased over time, mostly due to higher property and commodity prices, and are, in large part, owned by subnational governments. Many countries have launched reforms with a view to streamlining public administrations, but receipts and savings have been rather small so far. Governments tend to consider relatively small sets of assets to be disposable, though preferences could change in the future. A potential source for future revenues could be greater reliance on user charges, such as road tolls. In most cases, a first step for more effective asset management has to be the expansion and improvement of data compilation.

English

Given the recent developments in the Nigerian banking industry, only a profitable banking sector is better able to withstand negative shocks and contribute to the stability of the financial system. This assertion compels an in depth investigation of the determinants of the profitability of deposit money banks in Nigeria. Our data set is made up of 147 bank level observations over a 10-year period from 2001 to 2010 in respect of 15 banks that satisfied the study requirements. Data were obtained from the annual reports and accounts of the sampled banks. Pooled OLS (Pooled ordinary least square) stated in a multiple regression form was used to estimate the coefficients. Major outcomes of the analysis include that increase in size (higher total assets) may not necessarily lead to higher profits due to diseconomies of scale; higher capital-assets ratio and loans and advances contribute strongly to bank profitability. Overall, the paper suggests bank size, capital and asset composition as the major endogenous determinants of bank profitability in Nigeria. &nbsp; Key words: Profitability, bank size, asset composition, liquidity, capital adequacy

Foreign Currency Lending and Banking System Stability - New Evidence from Turkey

Regulators in developing countries have started to strict banks' foreign currency (FC) lending. Following others, in June 2009, in what is considered surprise the Turkish Government removed a provision from its existing laws that had allowed Turkish residents to borrow in foreign currency from banks operating in Turkey. The development ended a long era of foreign currency lending for consumer loans. This paper studies the determinants and consequences of foreign currency lending for banks in Turkey in the run-up to this significant policy change. By using detailed balance sheet data on the Turkish lira and foreign currency composition of bank assets and liabilities between 2002 and mid-2009 when the policy change was initiated, we evaluate the drivers of FC lending by banks in Turkey along with consequences for the banking system in particular and for the economy in general. We highlight possible risks to the Turkish banking system as a result of the system's heavy exposure to exchange rate and default risks. In doing so, we show that the policy change was not necessarily a surprise but a cautionary step in the right direction to help keep Turkish banking system stable.

Economic Consequences of Mandated Accounting Disclosures: Evidence from Pension Accounting Standards

ABSTRACT: I examine whether firms alter their behavior in response to changes in accounting standards that mandate new financial statement disclosures. While prior research suggests that new recognition rules lead to changes in firm behavior, there is limited evidence that disclosure rules can impact firm behavior. This study helps to fill this void in the literature by examining the economic consequences of the mandated disclosures of pension asset composition required under SFAS 132R. Under pension accounting rules, the composition of pension assets is a key determinant of the assumed expected rate of return (ERR) on pension assets. I find that when firms disclose asset composition for the first time under SFAS 132R, firms that were previously using upward-biased ERRs respond by increasing asset allocation to high-risk securities and/or reducing the ERR assumption. While disclosure requirements arguably create less powerful incentives to alter firm decisions than recognition requirements, these findings offer evidence that firms alter behavior in response to disclosure standards. Data Availability: The data used in this study are publicly available from the sources indicated in the text.

On Funding Costs and the Valuation of Derivatives

Since the credit crisis the valuation of simple derivatives has become much more complex, primarily through so-called adjustments such as the credit value, debt value and funding value adjustment. Most of these elements of the valuation are well understood, although not always easily calculated. However, on the inclusion of the funding costs in the valuation, through a funding value adjustment, there is currently no consensus. This paper shows that the lack of concensus comes from two fundamentally different assumptions regarding funding costs of a bank. One assumption, mostly used in the literature, is that funding costs are fixed. This leads to derivatives' values that, in general, depend on the funding rate of the bank. The other, newly introduced, assumption is that funding costs immediately adjust after each new transaction to reflect the new asset composition. It is shown that under this assumption, in the Black-Scholes model, the funding costs of the bank do not affect the value of derivatives. I argue that the latter assumption is more appropriate for the valuation of derivatives.