Expense Preference Behavior Research Articles

A Study on the Efficiency of General Takaful Operators in Malaysia: Post Implementation of IFSA 2013

This study aims to measure the efficiency of the general Takaful operators in Malaysia with the selected inputs, labour cost and management fees. On the other hand, the output used is gross contribution. General Takaful operators are the institutions governed by the Islamic Financial Services Act 2013 (IFSA). IFSA 2013 is the key statute governing the Islamic finance sector, which replaced statutes such as the Islamic Banking Act 1983 and the Takaful Act 1984. Based on the annual data gathered from 2014 to 2018 (post implementation of IFSA 2013), the efficiency is analysed using Data Envelopment Analysis (DEA) on four selected institutions in the general Takaful business. DEA results show that Etiqa General Takaful Berhad, Syarikat Takaful Malaysia Am Berhad are considered as the most efficient. The rest of general takaful operators in the sample were deemed technical inefficient. The results also indicate that inefficient institutions including those with the lowest performance which are Takaful Ikhlas General Berhad and Zurich General Takaful Malaysia Berhad have inefficient management in resource utilisation. In conclusion, the findings have confirmed the market share theory and infer to the expense-preference behaviour on the part of the general Takaful operator. Perhaps, the general Takaful operators are posed with an expedient manner trying to satisfy their own benefits. In order to achieve full efficiency, any Takaful operators have to increase its market share segments by increasing its gross income and contribution through developing demand for general Takaful products and mostly on takaful product itself.

Foreign directors and corporate governance in Islamic banks

PurposeThe purpose of this paper is to examine whether foreign directors’ influence on opportunistic behavior among managers varies between Islamic banks (IBs) and conventional banks (CBs). It also examines how religious ethics and morals guide foreign directors to be better monitors.Design/methodology/approachA panel fixed effects regression is used to analyze the effect of foreign directors on opportunistic behavior among managers in IBs and CBs. The authors use different proxies such as loss avoidance, discretionary loan loss provision and expense preference behavior to measure management opportunistic behavior.FindingsBased on sample of 3,758 bank-year observations for 164 banks over the period 1993-2015, the authors show that the presence of foreign directors in IBs increases boards’ effectiveness in impeding management opportunistic behavior, whereas the presence of foreign directors in CBs reduces boards’ effectiveness in curbing management’s unethical acts. The authors also document that IBs (CBs) with foreign directors demonstrate less (more) earnings management and expense-preference behavior among managers. In addition, the authors’ evidence indicates that the existence of the Shari’ah supervisory boards helps foreign directors be more effective monitors.Research limitations/implicationsThe current study focuses on banks only which makes its results subject to sample bias; there are many other forms of financial institutions (e.g. investments, real-estates and mutual funds) complying to the Shari’ah law. Second, owing to the lack of foreign board directors characteristics, the authors cannot investigate the intensity of the specific characteristics that could have specific directions in affecting managerial behavior.Practical implicationsThe findings in this paper may help standards-setters, auditors, investors and regulators take appropriate measures and create better policies that reduce managers’ discretion. This could in turn improve information transparency decision-making, monitoring, advising and accounting quality.Originality/valueThe authors’ theoretical framework combines the agency, contingency, resource-dependence, stewardship and stakeholders’ theories and applies them to Shari’ah as an alternative ethical and internal governance mechanism. The authors find that the impact of foreign directors on management opportunistic behavior depends on the corporate religious norms within boards of directors, in particular, suggesting that religious values affect how foreign directors influence bank managers’ behavior.

Expense Preference Behavior by Managers in Casino Resorts

The main goal of management in the United States is to maximize the wealth of shareholders. Managers, though, sometimes make decisions that benefit them more than the shareholders. When this occurs they are considered to be exhibiting expense preference behavior. This study evaluates expense preference behavior by managers of Nevada casinos. Using ordinary least squares regression, significant positive results show that for each 1% increase in revenue, employees increase 0.88%, salaries and wages increase 0.98%, and total payroll increases 1.01%. Also during the biggest economic downturn to hit Nevada casinos, management significantly decreased employees 14.7%, salaries and wages 4.9%, and total payroll 3.9%. Since managers are able to decrease payroll-related expenses after controlling for the change in business volumes, they are most likely operating inefficiently during good economic times. These additional expenses equate to a lower net income, which decreases owners' residual income and increases the...

Influence of Turbulent Macroeconomic Environment on Productivity Change of Banking Sector: Empirical Evidence from India

This study aims to assess the direct impact of US subprime crisis and turbulent macroeconomic conditions on the productivity gains of Indian banking sector using non-parametric data envelopment analysis (DEA) based Malmquist productivity index (MPI) and panel data regression model for the period 2000–2010. This study evaluates the trend of productivity change and assesses the influence of turbulent macroeconomic environment and financial crisis along with regulatory/microeconomic factors on the productivity of the Indian banking sector. The results reveal overall productivity increase during the period under study with the technological improvement across the sector. Financial crisis 2008–2009 exhibits positive and significant impact on the productivity Indian banking sector. Empirical findings suggest that the Indian banking industry sustained their productivity growth even during the global crisis. GDP and inflation exhibits negative and significant association with the productivity gains of Indian banking sector. Productivity growth exhibits significant and positive association with the listing in the stock exchange and therefore this study supports the ‘market discipline’ hypothesis in Indian banking sector. Bank size in terms of total assets, bank’s diversification strategy and profitability exhibit insignificant relationship whereas bank’s expense preference behaviour reveals negative relationship. Bank origin exhibits insignificant association and ownership reveal positive association. Therefore, results of the study do not support global advantage hypothesis in Indian banking sector.

The Nexus between Economic Freedom and Islamic Bank Performance: Empirical Evidence from the MENA Banking Sectors

The present study provides new empirical evidence on the impact of economic freedom on Islamic banks’ performance. The empirical analysis focuses on Islamic banks operating in the MENA banking sectors during the period 2000–2008. We find that the larger, more diversified, and better capitalized Islamic banks tend to be relatively more profitable, while credit risk and expense preference behavior seem to exert negative impact. The findings suggest that greater financial freedom positively influence the profitability of Islamic banks operating in the MENA banking sectors. Interestingly, the impact of monetary freedom is negative implying that higher (lower) monetary policy independence reduces (increases) Islamic banks’ profitability, providing support to the benefits of government interventions.

Do Rooms Managers Exhibit Expense Preference Behavior in Nevada Casinos?

Within the hospitality industry, the largest expense is payroll, and it is often considered one of the most controllable. Expense preference theory postulates that managers may focus more on maximizing their own utility by overspending as opposed to firm profit maximization. The purpose of this study is to evaluate if hotel managers in Nevada casinos exhibit expense preference behavior by overstaffing. Results of various regression models show that occupied rooms is positively and significantly related to rooms payroll. In one model, there is a modestly significant relationship between market concentration and rooms payroll. Results also show that after accounting for other variables, there is no significant relationship between a recession and rooms payroll.

Organizational Form and Expense-Preference Behavior: Evidence from Islamic Banks

This paper examines the organizational forms of Islamic banks, corporate governance mechanism, and their effects on organizational behavior, specifically relating to managerial expense preferences. The paper opted for an OLS cluster regression and followed by a stochastic frontier approach test as a robustness test. Findings of this study indicate that organizational forms of Islamic banks influence managerial expense preferences. A stochastic frontier approach test supports the initial findings and reveals that the average noninterest cost inefficiency of Islamic banks without Shari’ah Boards is 23% compared to commercial banks. Islamic banks with Shari’ah Boards are, on average, 28% less noninterest cost inefficient compared to Islamic banks without Shari’ah Boards, and are on average, 16% less noninterest cost inefficient compared to commercial banks. Shari’ah Supervisory Boards’ positive implications for Islamic Banks are independent of the expectations of the governing structure or ownership. Specifically when looking at Islamic Banks with Shari’ah Supervisory Boards, managerial propensity to engage in self- serving behavior is reduced. This paper fulfils an identified need to understand how the distinct nature of Islamic banks organizational forms and governance impact managerial behavior.

Organizational Form and Expense-Preference Behavior: Evidence from Islamic Banks

This paper examines the organizational forms of Islamic banks, corporate governance mechanism, and their effects on organizational behavior, specifically relating to managerial expense preferences. The paper opted for an OLS cluster regression and followed by a stochastic frontier approach test as a robustness test. Findings of this study indicate that organizational forms of Islamic banks influence managerial expense preferences. A stochastic frontier approach test supports the initial findings and reveals that the average noninterest cost inefficiency of Islamic banks without Shari’ah Boards is 23% compared to commercial banks. Islamic banks with Shari’ah Boards are, on average, 28% less noninterest cost inefficient compared to Islamic banks without Shari’ah Boards, and are on average, 16% less noninterest cost inefficient compared to commercial banks. Shari’ah Supervisory Boards’ positive implications for Islamic Banks are independent of the expectations of the governing structure or ownership. Specifically when looking at Islamic Banks with Shari’ah Supervisory Boards, managerial propensity to engage in self-serving behavior is reduced. This paper fulfils an identified need to understand how the distinct nature of Islamic banks organizational forms and governance impact managerial behavior.

Globalizations and bank performance in China

The paper provides for the first time empirical evidence on the impact of economic globalization on the performance of banks operating in the Chinese banking sector. The empirical findings from this study suggest that the well capitalized banks tend to be more profitable, while expense preference behavior exerts negative impact on bank profitability in China. By examining different components of economic globalization, we find that greater economic integration via higher trade flows, cultural proximity, and greater political globalization have significant and positive influence on bank profitability levels. The impacts of personal contacts and information flows seem to work in favour of the Chinese banks. During the period under study, the empirical findings seem to suggest that liberalization (restrictions) of the capital account exerts positive (negative) influence on the profitability of banks operating in the Chinese banking sector.

The Impact of Forced Mergers and Acquisitions on Bank Cost Efficiency: Empirical Evidence From Malaysia

The present paper examines the impact of forced mergers and acquisitions on the cost efficiency of the Malaysian banking sector. The analysis consists of three stages. Firstly, by using the Data Envelopment Analysis (DEA) approach, we calculate the cost, allocative, and technical efficiency of individual banks during the period 1997-2003. Secondly, we examine changes in the efficiency of the Malaysian banking sector during the pre and post merger periods by using a series of parametric and non-parametric univariate tests. Finally, we employ the multivariate Tobit regression analysis to examine factors that influence the efficiency of the Malaysian banking sector during the pre and post merger periods. The empirical findings suggest that the merger has resulted in a higher mean cost efficiency of the Malaysian banking sector post merger. We find that the acquirers have been relatively more cost efficient in all of the seven merger cases analyzed. The results from the multivariate regression analysis suggest that loans intensity, size, income diversification, and capitalization exhibits positive relationship with bank efficiency. On the other hand, market share and expense preference behaviour are negatively related to bank efficiency levels. The empirical findings suggest that banks in the control group have been relatively more cost efficient than those that were involved in mergers. The results suggest that the variations in Malaysian bank cost efficiency are not significantly related to economic conditions and concentration.

The determinants of efficiency of publicly listed Chinese banks: evidence from two-stage banking models

The paper attempts to investigate the long-term trend in the efficiency of the Chinese banking sector over the period 1997–2006 by employing the Data Envelopment Analysis (DEA) window analysis method. We find that the small banks have exhibited the lowest mean technical efficiency compared to their medium and large bank peers, while the medium-sized banks were relatively more technically efficient compared to their small and large bank counterparts. The empirical findings suggest that the Joint Stock Commercial Banks (JSCBs) have been relatively more technically efficient compared to their State-Owned Commercial Bank (SOCB) counterparts attributed to higher mean scale efficiency. On the other hand, the SOCBs have outperformed their JSCB counterparts in terms of pure technical efficiency. The results from the second-stage regression analysis suggest that technical efficiency is positively associated with diversification, loans intensity, capitalization levels, and economic growth. On the other hand, technical efficiency is negatively related to size and expense preference behaviour.

Efficiency and Expense Preference in the Colombian Financial Cooperative Sector

This paper explores the expense preference behaviour in Colombian financial cooperatives. Our findings indicate that small cooperatives seem to use a production technology that is different from that of large ones, high-leverage cooperatives appear to use a technology that is different from that of low-leverage cooperatives, and managers of larger units exhibit separable-expense behaviour, while managers from lower-leverage units exhibit joint-expense preference behaviour. These results suggest that, in Colombia, a merger of small cooperatives into larger ones is a decision that should either not be promoted or carefully analyzed before being taken, in order to clearly detect all the possible benefits that might counterbalance managers' expense preference behaviour.

Determinants of non-bank financial institutions' profitability: empirical evidence from Malaysia

The present paper examines the determinants of non-bank financial institutions' (NBFIs) profitability in a developing economy. Specifically working within the Malaysian financial sector, the analysis is confined to the universe of the merchant banks and finance companies operating in the Malaysian financial sector during the period 2000-2004. The results suggest that Malaysian NBFIs with a higher risk exhibits lower profitability level. On the other hand, the large Malaysian NBFIs with high operational expenses exhibits higher profitability level, thus supporting the expense preference behaviour hypothesis. The results suggest that specialisation has no significant relationship with Malaysian NBFIs profitability.

Determinants of bank efficiency during unstable macroeconomic environment: Empirical evidence from Malaysia

The present study investigates for the first time the efficiency of Malaysian banking sector around the Asian financial crisis 1997. The efficiency estimates of individual banks are evaluated by using the Data Envelopment Analysis (DEA) approach. To examine the robustness of the estimated efficiency scores under various alternatives and to differentiate how efficiency scores vary with changes in inputs and outputs, the present study focuses on three major approaches viz., intermediation approach, value added approach, and operating approach. The analysis further links the variation in calculated efficiencies to a set of explanatory variables, i.e. bank size, profitability, and ownership. The empirical findings clearly bring forth the high degree of inefficiency in the Malaysian banking sector, particularly a year after the East Asian crisis. The results suggest that the decline in technical efficiency is more abrupt under the intermediation approach relative to the value added approach and operating approach. The regression results focusing on bank efficiency and other bank specific traits suggest that efficiency is negatively related to expense preference behavior and economic conditions, while bank efficiency is positively related to loans intensity.

The effects of stochastic demand and expense preference behaviour on public hospital costs and excess capacity

The literature to date on the effect of demand uncertainty on public hospital costs and excess capacity has not taken into account the role of expense preference behaviour. Similarly, the research on expense preference behaviour has not taken demand uncertainty into account. In this paper, we argue that both demand uncertainty and expense preference behaviour may affect public hospital costs and excess capacity and that ignoring either of these effects may lead to biased parameter estimates and misleading inference. To show this, we extend the analysis of Rodríguez-Alvarez and Lovell (Health Econ. 2004; 13: 157-169) by incorporating demand uncertainty into the technology to account for the hospital activity of providing standby capacity or insurance against the unexpected demand. We find that demand uncertainty in Spanish public hospitals affects hospital production decisions and increases costs. Our results also show that overcapitalization in these hospitals can be explained by hospitals providing insurance demand when faced with demand uncertainty. We also find evidence of expense preference behaviour. We conclude that both stochastic demand and expense preference behaviour should be taken into account when analysing hospital costs and production.

Expense preference behavior and management “outsourcing”: a comparison of adopters and non-adopters of contract management in U.S. hospitals

Specialized managerial expertise, coupled with the threat of non-renewal should improve efficiency in firms that opt for contract management arrangements. To examine this we apply a generalized version of tests for expense preference behavior to U.S. hospitals in the 1990s. Extending prior literature, we create a quasi-experimental design for a comparison of adopters and non-adopters of contracts using propensity score methods. We generate the distribution of ‘expense preference’ parameters for all contract adopters in both the pre- and post-adoption states, and for a matched control group of non-adopters over the same period. Our results show that contract adoption leads to reduced expense preference behavior, but that this result depends critically on the input being examined.

Competition and R&D in retail banking under expense preference behaviour

Cost-reducing R&D activities are examined in the context of a retail banking sector where some entities exhibit an expense preference. The results reveal that the effects from R&D interact with the effects in the previous literature in shaping the equilibrium configuration.

Efficiency and Expense Preference in the Colombian Financial Cooperative Sector

This paper explores the issue of expense preference behaviour in Colombian cooperatives. Cost data were analysed and statistical tests conducted to explore whether large cooperatives, when compared to small ones, and low leverage, when compared to high leverage, exhibit expense preference behaviour in the input labour. To carry out these tests the method described in Mester (1989) was employed. Our findings indicate that small cooperatives seem to use different production technology than large ones. Likewise, high leverage appears to use different technology than low leverage cooperatives. Managers of larger units exhibited separable expense behaviour: Larger in this case was not equivalent to better. With respect to the effect of financial leverage, lower leverage units exhibited joint expense preference behaviour. Although there are not studies in Colombia on the expense preference behaviour in cooperatives, this study come to terms with other studies on the efficiency of the Colombian financial system where evidence was found of the importance of the so called X Inefficiency. Leaving aside considerations of quality of services and focusing on costs, our findings indicate that, merger of small cooperatives into larger ones is a decision that either should not be promoted or must be carefully analysed before taken it to clearly detect all the possible benefits that might counterbalance to the expense preference behaviour exhibited by managers.

Examining legislative challenges to central bank autonomy: macroeconomic and agency costs models

This study examines the determinants of legislative threats (from the US Congress) to the Federal Reserve’s prerogatives (e.g., budgetary authority, autonomy, secrecy, etc.). Specifically, two competing theories of legislative threats – one relating the Fed’s management of the macro economy and the other to the Fed’s expense preference behavior (i.e., its budget-building activity) – are empirically modeled. The results suggest that aspects of both the “macroeconomic model” and the “agency costs/political model” have merit. However, tests of non-nested hypotheses indicate the superiority/dominance of the latter model in explaining variations in legislative threats from Congress over time (1964–1993).

The Financial and Operational Impacts of FERC Order 636 on the Interstate Natural Gas Pipeline Industry

The Federal Energy Regulatory Commission's Order 636 fundamentally altered the regulatory and operational environment of the natural gas industry in 1992, as the culmination of several directives aimed at relaxing regulation and fostering competition. We hypothesize that gas pipeline firms subsequently changed their operational and financial behavior in ways consistent with reduced balkanization, increased competition, and reduced expense preference behavior. Our results indicate that these firms have become more homogeneous financially but less so operationally. We find evidence that the marginal profitability of various pipeline activities has responded more to financial market conditions than to the regulatory environment.