Excess Capital Research Articles

Is the market biased in M&A, dividend payment, and share repurchase events?

Companies with excess capital can opt to: pay dividends to shareholders, buy back treasury shares for short-term shareholder benefits, or pursue M&A investments for long-term shareholder returns. Using difference in differences approach of event research methods combined with unique manually collected data sets, this paper investigates the market bias for three events: M&A, share repurchase, and dividend payment. The results show that information was leaked to the outside 1 day before it was officially announced at all events. When observing the company's performance 3 years after the event announcement, we also find that the market reaction is biased in M&A and stock dividend payment events, but accurate in the cash dividend payment and share repurchases. In addition, the market has the strongest and longest reaction to the news of the company buying back shares; has the weakest reaction to the stock dividend payment; has the shortest reaction to cash dividend payment; has a negative reaction to the acquisition company's stock, and has a positive reaction to the target company's stock. Our research has provided empirical evidence on the market response to published information, and supports CEOs make the most accurate choices when the company has an excess cash flow.

Strategi dalam Menangani Pembiayaan Bermasalah Pada PT Bank Sumut Cabang Syariah Rantau Prapat

Banking is a financial institution that plays an important role in a country’s economy. One of the current economic developments in Indonesia is the emergence of sharia-based financial institution, one of which is sharia banking. Like the function of banking itself, namely as an intermediary between people who need capital and people who have excess capital. One of sharia banking services is financing, namely the distribution of money by banks to costumers who need working capital. The bank provides capital to customers as business capital whose business result are calculated from the results according to the agreement. But in reality, it is not uncommon for customers to fail to pay for this financing. One of the reasons for the cessation of funding itself is the possibility of worsening business conditions. To minimize the risk of bad financing itself, banks must be able to make clear rules. In this article, Bank SUMUT Syariah Karya Rantau Prapat discusses various strategies for dealing with bad financing.

Ownership Structure, Firm Size and the Operational Risk Management of Domestic Commercial Banks in Sri Lanka

Purpose: The banking sector is a crucial player in any economy, often affected by economic and social crises. Thus, it is vital to identify the intrinsic weaknesses of banks to manage their operational risk. The recent COVID-19 pandemic also severely affects the global financial sector, irrespective of the development status. Accordingly, this study is an attempt to find out the evidence on operational risk management and its relationship with bank size and ownership structure of the banking sector in one of the developing countries in the world, Sri Lanka.Design/Methodology/Approach: Financial data of eight out of thirteen commercial banks in Sri Lanka were analyzed over 13 years using panel data regression analysis. Sri Lankan banks' operational risk management practices are measured by excess capital (over the required minimum capital for operational risk). Deposits plus advances are used to calculate the size of a bank.Findings: It is revealed a significant positive relationship between firm size and operational risk management. A significant relationship between the ownership and excess capital held by banks for managing operational risk is also identified. This result leads to the conclusion that the larger commercial banks hold higher excess capital over the required minimum as per Basel accords. Moreover, government-owned banks are recognized to have more excess capital for operational risk management.Implications: Given the high amount of losses from bad loans and the central bank's implementation of Basel III regulations, the study has implications for Sri Lankan banks.Originality: When considering Sri Lankan context there can be found only a little amount of evidence on operational risk management practices and its relationship with size and ownership.

Strategy in Handling Problem Financing at PT. Bank Sumut Syariah KCPSY Karya

Banking is one of the financial institutions that play an important role in the economy of a country. One of the current economic developments in Indonesia is the emergence of shariabased financial institutions, one of which is Islamic banking. Like the function of banking itself, namely as an intermediary institution between people who need capital and people who have excess capital. One of the Islamic banking facilities is financing, namely the distribution of funds from banks to customers who need working capital. The bank will provide capital to customers as business capital whose business results will be calculated for the results according to the agreement. However, in reality, in this financing, it is not uncommon for customers to experience default on installment payments. One of the causes of non-financing itself is due to business conditions that may decline. To minimize the risk of bad financing itself, banks must be able to create clear regulations. In this article, we will discuss the various strategies carried out by the Bank SUMUT Syariah Karya Medan in dealing with bad financing.

Keragaan Koperasi Dan Potensi Pengembangan Koperasi Simpan Pinjam Keluarga Besar Al-Muttaqien Sukajadi

Cooperatives create jobs and increase income so that they are expected to be able to realize a safe and peaceful, just and democratic, and prosperous Indonesia. This condition will be difficult to realize if people still live in poverty and high unemployment rates, as well as economic inequality and inequality in the control of productive resources in the community. Cooperatives will not be attractive to members, prospective members and other people who want to become members, because they only feel they have excess capital. The purpose of this research is to provide a real picture for the practitioner to know, study, analyze, and provide a real picture to students regarding the environmental conditions of the world of work. This research uses case study research method. From this study, it was found that the financial statements in 2020 were considered to be lacking because the percentage ratio was still below the cooperative standard. From the aspect of the financial statements, it was complete and clear with the recording of each transaction and an explanation of each nominal entry and exit. Based on the SWOT analysis Koperasi Simpan Pinjam Keluarga Besar Al-Muttaqien Sukajadi has strengths and opportunities to deal with existing weaknesses and threats.

Impact of Ownership Structure and Firm Size on the Operational Risk Management of Islamic Banks in Pakistan

This study investigates the impact of ownership structure and firm size on the operational risk management (ORM) in the context of Islamic banks in Pakistan. ORM is the excess capital acquired after subtracting actual capital from minimum capital required for handling operational risk. While, the bank size is measured as deposit plus advances or log of total assets. The Basic Indicator Approach (BIA), and Standardize Approach (STA) is used to measure the minimum capital required for managing operational risk. A panel data set of 19 Islamic banks listed on the Pakistan Stock Exchange (PSX) is analyzed over the period from 2012 to 2016.Three important observations are provided by the results; first increase in the size of the Islamic banks tend to lower the surplus capital maintain by banks for managing operational risk. Second, a significant positive relationship is reported between excess capitals required for managing operational risk and public owned Islamic banks. Third, the results are reported as robust as all three regression model provided similar results.

Evaluating the Efficiency of Indian Life Insurance Sector

ABSTRACT The purpose of study was to investigate the technical efficiency of Indian life insurance companies using data envelopment analysis (DEA) to find the reasons for inefficiency. It aimed to analyze the efficiency of all the 24 life insurance companies operating in India for the period 2013-2017 using DEA based on secondary data collected from the Insurance Regulatory and Development Authority Annual Reports. Findings indicated that the state life insurer, that is, Life Insurance Corporation (LIC) was efficient throughout the entire study period. The private life insurance companies exhibited variations in their performance levels as they were comparatively new in the life insurance sector and of different sizes. Some private life insurers operated efficiently, while some private life insurers were less productive using excessive capital; on the other hand, few life insurers grew fast using technology. The methodology employed in this study estimates relative efficiencies without assuming any functional form; as a result, the proper comparison of input utilized with the output produced was not possible. The study brought into light the operating characteristics and efficiencies of all the Indian life insurance companies during the period 2013-2017 and therefore holds important insights for policy makers and practitioners as well as for the decision makers.

The Effects of Regulatory Capital Requirements and Ownership Structure on Bank Lending in Emerging Asian Markets

This study examines the impact of regulatory capital requirements and ownership structure on bank lending in Emerging Asian Markets. The findings of the study imply that banks with excess capital are less affected by capital constraints and enjoy opportunities to extend their credit portfolios. The monitory policy indicator has the expected negative and significant impact on bank lending. In case of well-capitalized banks, the interaction between the excess capital and monetary policy indicator has a significant positive relation with bank lending, which means that banks with excess capital have capability to raise uninsured financing and shield their loan portfolios as compared to less-capitalized banks that reduce their lending in the period of monetary tightening. In the case of bank ownership structure, banks with excess capital ratios and ownership concentration lead towards an increase in lending activity. The findings also show that well-capitalized banks with managerial ownership tend to reduce lending which validates agency theory of corporate governance.

Does bank capital affect the monetary policy transmission mechanism? A case study of Emerging Market Economies (EMEs)

The objective of this study is to investigate the impact of bank capital on monetary policy transmission mechanism during the period from 2010 to 2016 for 20 Emerging Market Economics (EMEs) by using the two-step system generalized method of moments (GMM). The coefficient of excess capital in low-asset countries is found to be negative which reveals the importance of excess capital for the effectiveness of monetary transmission. However, the study could not find the significance of excess capital for high-asset countries as they may afford the risky way to generate their income by increasing the loan supply.

Credit, funding, margin, and capital valuation adjustments for bilateral portfolios

We apply to the concrete setup of a bank engaged into bilateral trade portfolios the XVA theoretical framework of (Albanese and Crépey2017), whereby so-called contra-liabilities and cost of capital are charged by the bank to its clients, on top of the fair valuation of counterparty risk, in order to account for the incompleteness of this risk. The transfer of the residual reserve credit capital from shareholders to creditors at bank default results in a unilateral CVA, consistent with the regulatory requirement that capital should not diminish as an effect of the sole deterioration of the bank credit spread. Our funding cost for variation margin (FVA) is defined asymmetrically since there is no benefit in holding excess capital in the future. Capital is fungible as a source of funding for variation margin, causing a material FVA reduction. We introduce a specialist initial margin lending scheme that drastically reduces the funding cost for initial margin (MVA). Our capital valuation adjustment (KVA) is defined as a risk premium, i.e. the cost of remunerating shareholder capital at risk at some hurdle rate.

Horizontal mergers and divestment dynamics in a sunset industry

Industries with declining demand tend to be riddled with chronic excess capital due to the presence of a business‐stealing effect and fixed costs. This article highlights the potential of mergers to internalize this business‐stealing effect and thereby promote divestment. Using the case of mergers in the Japanese cement industry, it examines whether such merger‐induced divestment improves total welfare based on a dynamic model of divestment. The findings suggest that merged firms indeed tended to reduce capital more actively and that, as a result of these mergers, total welfare improved despite a reduction in the consumer surplus.

Relationship between operational risk management, size, and ownership of Indian banks

Purpose The purpose of this paper is to analyse the relationship between operational risk management (ORM), size, and ownership of Indian banks. This is important in the context of financial crisis experienced by developed countries due to lax regulation. Design/methodology/approach ORM practices of Indian banks are proxied by excess capital (over the required minimum capital for operational risk). Size of a bank is measured as deposits plus advances. Our sample includes 61 Indian banks during the period from 2010 to 2013. The authors empirically examine the impact of bank size on excess capital using panel data regression model. Findings The results suggest that size of Indian banks is inversely related to excess capital held by them for managing operational risk. The inverse relationship implies that smaller banks hold higher excess capital over the required minimum as per Basel norms. There is no significant relationship between ownership (public, private and foreign) and excess capital held by banks for managing operational risk. Practical implications The study has implications for Indian banks given the high level of losses due to bad loans, and the implementation of Basel III norms by the central bank, i.e. Reserve Bank of India. Social implications The study has implications for Indian financial system as a large percentage (about 33 per cent) of household savings are deployed in deposits with commercial banks and other financial institutions. The bank failure(s) can have disastrous consequences for the Indian economy as the capacity of the Indian financial system to withstand such shocks is highly doubtful. Originality/value There is very little evidence on ORM practices of Indian banks, and its relationship with size and ownership. The study assumes significance in the context of significant changes in the institutional and regulatory framework.

Pengaruh likuiditas, kualitas aset, sensitivitas pasar, dan efisiensi terhadap Return On Asset (ROA) pada bank devisa yang go public

Banks are the financial institutions that have functions as the intermediary between the two parties such as those who need capital and those who have excessive capital. This research aims to analyze whether LDR, LAR, IPR, NPL, APB, IRR, PDN, BO-PO, and FBIR simultaneously and partially have significant effect on ROA. It uses secondary data taken by means of documentation method. These data were taken from published financial report of the foreign go-public national banks form first quarter of 2010 until second quarter of 2014. Multiple regression analysis was used for analysis. It shows that LDR, LAR, IPR, NPL, APB, IRR, PDN, BOPO, and FBIR simulta-neously have significant effect on ROA. In addition, LAR and FBIR, PDN, BOPO, NPL, partially have positive significant effect on ROA. But, LDR, IPR and APB, and IRR partially have negative and insignificant effect on ROA.

Regulatory capital and its effect on credit growth, non-performing loans and bank efficiency

Purpose – This paper aims to investigate the influence of the central bank’s regulatory capital on commercial banks specific performance outcomes such as credit supply, interest rate spread (as a measure of efficiency) and non-performing loans (NPLs). Design/methodology/approach – Using specific commercial bank-level panel data from 2002-2012, a system of equations was modeled that allows us to apply the system generalized methods of moment approach and estimate the equations, while controlling for specific bank level, industry and macroeconomic variables. Findings – The study finds a positive relationship between a net minimum capital ratio and the net interest margin. Although this is in contrast with the study expectations, the result suggests that a high net minimum capital requirement would widen the spread between the lending and saving rates. The study further finds evidence to support the fact that high minimum capital requirement and excess capital above the minimum required drive credit growth in the banking sector of Ghana. However, high excess capital increases risk-taking activities of the banks, as excess capital is found to be associated with high NPL ratios. Practical implications – Given the economic benefits and costs of sharply increasing bank regulatory capital, our results speak to the ongoing debates on the right level of capital, the effectiveness of the Bank of Ghana policy rate (PR) and the high lending rates that appear to respond only slowly to macroeconomic indicators such as the PR and the inflation rate. The finding also has practical implications for the adoption of the Basel III accord. Originality/value – The empirical literature has not paid enough attention to the impact of regulatory capital on the three specific bank-level outcomes – NPLs, interest rate spread and the nature of interrelationships among these variables, particularly in the African context.

A novel combination of internal and external heat integrations in batch distillation: Application to a reactive system

Studies on the thermal integration of batch rectifier have received almost no attention, although it is well-known for continuous distillation since the 1960s. In this contribution, we aim to develop an energy integration approach for batch distillation columns by thermally coupling the rectification tower with the concentric reboiler that surrounds the tower as a jackted. In this internally heat integrated batch distillation with a jacketed reboiler (IHIBDJR), the vapor produced in the concentric reboiler is compressed and then it enters the bottom of the rectifier. With the judicious use of internal heat source, the proposed IHIBDJR shows its attractiveness in terms of energy savings and payback time of excess capital. The pressure elevation from the jacketed reboiler to rectifying section generates a possibility of further intensification through the introduction of direct vapor recompression mechanism in the IHIBDJR. This novel combination of internal and external heat integrations can utilize the latent heat, an additional internal source, released by the compressed overhead vapor in vaporizing the reboiler liquid. After deriving the general form of this combined heat integrated structure, the mechanism is finally illustrated by a batch reactive distillation. This hybrid configuration shows promising energetic and economic potential over the IHIBDJR and its conventional counterpart.

Financial Frictions and the Credit Transmission Channel: Capital Requirements and Bank Capital

We investigate actual capital chosen by banks in presence of capital minimum requirements and ex-post penalties for violating them. The model yields excess capital that is always positive and increases during times of distress in the economy, which is in line with empirical evidence. Next, we show that in presence of ex-post violation penalties the introduction of the conservation buffer under Basel III will not contribute to lowering the pro-cyclicality of capital regulations. The countercyclical buffer proposed under Basel III is then even more desirable as it significantly attenuates fluctuations of actual capital also when the penalties are accounted for.

Inequality, Surplus Capital & Underconsumption: A Contemporary Analysis of J.A. Hobson’s Economic Theory of New Imperialism

Macroeconomic study of 19th century European imperialism remains dominated by heterodox economists (particularly liberals and neo-Marxists), remaining largely unaffiliated with Classical and Neoclassical schools. Much theoretical treatment explaining this imperial era has been multidisciplinary, integrating history, sociology, and politics with economic analysis. Orthodox economists maintained imperialism is not driven predominantly by economic forces, and thus generally outside the scope of the subject. This view was challenged by British ‘social-liberal’ theorist John Atkinson Hobson (1858-1940) in his influential ‘Imperialism: A Study’ (1902). Hobson was a journalist, lecturer, and social reformer, whose writings made radically original and significant contributions to economics, politics, international relations and sociology. Hobson’s work emphasised welfare, liberalism and institutionalism. He argued that 19th century imperialism had an “economic taproot” (1902); that it was commercially worthless in trade, benefitting few, but symptomatic of market failure to allocate income effectively. Rather, governments persist with imperial policy primarily to protect substantial earnings on excess capital. This excess, he argued, arises from unequal bargaining power, which skews savings-consumption ratios towards systematic underconsumption behaviour in certain influential oligarchic financiers, who drive imperialism and reap its rewards.This paper analyses Hobson’s economic thought, focusing on his economic explanation of 19th century British ‘new imperialism’, contextualised within his work on welfare, income distribution, consumption, credit, and international macroeconomics. Presenting the historical, socio-political, and economic background of Hobson’s approach, we analyse Hobson’s theory and its economic underpinnings. Mathematical framework is formulated where possible and appropriate, for rigour. We demonstrate why New Imperialism persists, to minimise risks of speculative capital investments. Reviewing modern assessments of Hobson’s theory and comparing alternative imperialism theories, we investigate the validity of Hobson’s contribution, and its importance in economic thought. Finally, we conclude the theory relies on crucial, exogenous political assumptions which are difficult to verify and capture within economic framework.

Capital requirements and business cycles with credit market imperfections

The business cycle effects of bank capital regulatory regimes are examined in a New Keynesian model with credit market imperfections and a cost channel of monetary policy. Bank capital increases incentives for banks to monitor borrowers, thereby raising the repayment probability, and excess capital generates benefits in terms of reduced regulatory scrutiny. Basel I- and Basel II-type regulatory regimes are defined, and the model is calibrated for a middle-income country. Simulations of a supply shock show that, depending on the elasticity that relates the repayment probability to the bank capital–loan ratio, the Basel II regime may be less procyclical than a Basel I regime.

An empirical analysis of European stock repurchases

In this paper, we examine the share price effects and determinants of share repurchase programs for French, German, Italian, and British firms. Like US firms, we find that German and Italian share repurchases are met with a positive and significant share price response. However, British repurchase announcements exhibit small positive abnormal returns, and abnormal returns for French share repurchases are insignificantly different from zero, both results being quite different from results found in studies of US firms. We also investigate the determinants of the size of the share repurchase program. Our results indicate support for the Undervaluation Hypothesis and the Takeover Deterrence Hypothesis, and provide partial support for the National Investment Opportunity Set Hypothesis. Our results from our analysis of cumulative abnormal returns are also consistent with the Undervaluation, Takeover Deterrence, and National Investment Opportunity Set Hypotheses. However, we do not find support for the Excess Capital Hypothesis, the Intangibility Hypothesis or the Optimal Leverage Ratio Hypothesis.

Horizontal Mergers and Divestment Dynamics in a Sunset Industry

In oligopolistic industries, the amount of capital investment is likely to be excessive due to the presence of a business-stealing effect and fixed costs. Similarly, sunset industries with declining demand tend to be riddled with chronic excess capital. The reason is that firms will attempt to free-ride on the reduction of industry supply expected from someone else's divestment, hoping to steal their business. This paper highlights the potential of mergers to internalize this business-stealing effect and thereby promote divestment. Using the case of mergers in the Japanese cement industry, it examines whether such merger-induced divestment improve total welfare. A dynamic model of divestment based on the Markov-perfect equilibrium framework of Ericson and Pakes (1995) is estimated using recently developed econometric methods.Then, a counterfactual experiment is conducted to quantify the welfare impact of mergers.The findings suggests that merged firms indeed more actively closed facilities and that, as a result of these mergers, total welfare improved despite a reduction in the consumer surplus.