Percent Of Total Assets Research Articles

The collapse of Silicon Valley Bank and hedging strategies for interest rate risk

Research methodology This case was developed from published sources. Three types of data were used to develop this case. The accounting data were compiled by the case researcher from bank financial statements such as Form 10-K, Form 8-K and quarterly Financial Highlights issued by the bank. Market data were compiled from data providers such as FactSet, Yahoo! Finance, Pitchbook and the Federal Reserve System. Reports on market developments were gathered from major news outlets such as CNBC, The Wall Street Journal, Fortune and S&P Global. Case overview/synopsis Interest rate risk played a big role in the banking crisis of 2023. For Silicon Valley Bank (SVB), which specialized in providing banking services to venture-backed startups in the technology and life sciences sectors, its exposure to interest rate risk and the lack of hedging against interest rate risk had played a crucial role both directly and indirectly in the bank’s failure. This case study discussed the various channels that interest rate risk played in SVB’s failure as well as other risk factors that include an unusually high percentage of uninsured deposits and a high securities-to-asset ratio compared to its industry peers. In the low interest rate years of 2020 and 2021, startups were able to fundraise a record amount of funding from venture capital (VC) investors. As many startups deposited their funds at SVB, they became an important and concentrated depositor base for the bank and held large deposit accounts that easily exceeded the $250,000 limit insurable by the Federal Deposit Insurance Corporation. SVB benefited from the large deposit inflows in 2020 and 2021. The bank used some of the deposits to fund its loan portfolio, but most of the deposits were used to purchase debt securities such as US Treasuries and agency-used mortgage-backed securities. In fact, SVB’s investments in securities as a percentage of total assets were more than double its peers in the large banking organization (LBO) group, while the amount of loans funded as a percentage of total assets was almost half of its LBO peers. As interest rates increased rapidly throughout 2022, bond prices fell. SVB experienced unrealized losses of $15.2bn in its held-to-maturity securities portfolio, which was almost equivalent to its equity of $16bn at the time. However, SVB implemented little or no hedging against the risk of rising interest rates. At the same time, fundraising activities slowed in the VC sector amid high interest rates and, thus, SVB’s startups clients had to draw on past deposits to continue to fund their operations. This resulted in SVB experiencing significant deposit outflows throughout 2022. On March 8, 2023, SVB announced that it had sold all $21bn of its available-for-sale securities portfolio and suffered an $1.8bn in realized losses, which was greater than its entire last year’s net income. Markets jittered following the news. Over the next two days, depositors rushed to withdraw $142bn of deposits that represented 82% of its last year’s total deposits. Unable to withstand the crippling weight of deposit withdrawal, on March 10 the parent company of SVB filed for bankruptcy. Complexity and academic level Given the multiplexity of the banking crisis of 2023, this case study specifically discussed the collapse of SVB, which was the second largest bank failure at the time of its collapse. This case would be valuable for finance and economics students to learn how various risk factors interact that precipitated SVB’s failure. While there were many risk factors at play, this case study homes in on how SVB’s exposure to interest rate risk and the lack of hedging contributed to its downfall. For purpose of pedagogy, this case also explains how a bank could use on-balance-sheet as well as off-balance-sheet methods to hedge interest rate risk. This case is appropriate for courses in Risk Management, Derivatives as well as Financial Markets and Institutions with a focus on interest rate risk and its corresponding hedging methods. A course in Money and Banking may also find this case relevant. Before starting, it is assumed that students have already taken foundational finance and macroeconomics courses, have a basic understanding of financial statement analysis and its interpretations, derivative instruments such as futures and swaps, as well as have prior experience with basic duration calculations.

The Impact of Confucian Culture on Corporate Environmental Governance

Using A-share listed companies in Shanghai and Shenzhen from 2010 to 2019 and the density of Confucian temples and schools near sample company headquarters, this paper uses regression analysis to estimate the impact of Confucian culture on corporate environmental governance. Enterprise environmental capital investment as a percent of total assets is the dependent variable used as a proxy for environmental governance. The log of the number of the number of Confucian temples and Confucian academies within a 200-kilometer radius of the company's registered location plus one is the independent variable. This study finds that the environmental capital expenditures increase by 0.007% for every unit increase in the independent variable. Similar results are found when the radius is expanded to 300 kilometers. The greater the influence of Confucian culture is, the more inclined enterprises are to participate in corporate environmental governance. Additionally, environmental governance information disclosure can be a key influence path for this correlation. Further analysis finds that the relationship between Confucian culture and environmental governance is stronger with more experienced managers, a more developed institutional environment, and after 2015 following the People's Republic of China’s enactment of the Environmental Protection Law. This study expands the literature on the factors that influence Confucian culture on corporate environmental governance, enriches the empirical evidence of the influence of the informal system of corporate environmental governance on enterprise decision-making, and confirms the modern commercial value of Confucian culture.

The bank lending behaviour: Does non-performing loans matter? Evidence from the top-ten banks in the Arab world

This essay examines the third increase in non-performing loans (NPLs) in the Arab World, which the COVID-19 epidemic may have contributed to. This increase follows two previous waves that occurred in 1990 and after 2008. The primary aim is to analyze bank lending behavior, particularly examining the influence of firm-specific determinants on banks' lending activities and the impact of NPLs on this behavior. Utilizing secondary data from 2016 to 2020, this research focuses on the top ten national banks in the Arab region. The methodology incorporates panel data derived from audited financial statements and employs OLS regression (Pooled) for analysis. The findings reveal a significant negative impact of NPLs and capital adequacy ratios on bank lending behavior, while bank size and deposit growth positively influence lending activities. Additionally, the study notes an insignificant relationship between profitability, equity as a percentage of total assets, and lending behavior. These results provide practical insights for banking sector decision-makers, emphasizing the management of NPLs through maintaining adequate capital, enhancing deposits, and increasing bank assets. From a social perspective, the study suggests that banks should prioritize lending to investors likely to fulfil their obligations, potentially limiting credit availability for smaller entities and individuals without guarantees. This approach aims to mitigate the risks associated with NPLs. This work's originality lies in its concentration on a condensed sample that accounts for more than 70% of the banking resources in the Arab region, making it a significant contribution to applied research in this area that stands out for its reliance on pre-existing data.

Sustainable investment conditions and firm performance in the Middle East and North Africa: a holistic approach

ABSTRACT We analyze the effect of sustainable investment conditions on firm performance in the Middle East and North African countries. We measure sustainable investment conditions by the extent of market preparedness for sustainable investment and the percent of total assets under management qualifying for sustainable investment with and without Shariah-compliance characteristics. We use both accounting and market-based performance measures to capture alternative influences due to sustainable investment conditions. We control for firm-specific characteristics and country-level sustainability-related, economic, and institutional factors. We find that higher market preparedness is positively associated with all performance measures, whilst sustainable investment volumes are negatively associated with accounting measures of firm performance but positively associated with market performance. The effects remain broadly robust to various sensitivity tests and endogeneity analyses. Country-level institutions moderate the sustainability conditions effect. Our dominance analysis identifies the factors that are key in improving firm performance, providing clear directions for effective policy intervention.

Board Gender Diversity and Investment Efficiency: Global Evidence from 83 Country-Level Interventions

ABSTRACT We investigate the effect of board gender diversity (BGD) on investment outcomes. We identify variation in BGD by compiling, for the first time, a global catalog of 83 BGD interventions implemented in 59 countries between 1999 and 2021. Using a staggered difference-in-differences research design, we document that BGD interventions improve investment outcomes. We find that treated firms reduce inefficient investment by 0.6 percent of total assets or 6.5 percent of total investment and are 4 percentage points more likely to have above-median investment efficiency. Cross-sectional tests reveal more pronounced results when BGD interventions are mandatory, are strongly enforced, and result in larger BGD increases. Event-time, stacked panel, and a wide variety of endogeneity-mitigating robustness tests corroborate. Our plausibly causal inferences have important implications for both research and practice. JEL Classifications: F52; G34; G38; K22; M41; K38.

The effect of firm type on the relationship between accounting quality and trade credit in listed firms

In this study, it is evaluated how different types of organizations influence the connection between accounting quality and trade credit in Iraqi public companies. Trade credit, defined as accounts payable as a percentage of total assets, is the dependent variable of this study. Accounting quality is the independent variable, and it is measured in three ways: the ability to sustain profits, the ability to predict profits, and the ability to manage real earnings (Arora & Singh, 2021). The sample size is 35 different companies from the years 2011–2016. When we look at this time frame, we see a financial crisis between 2011 and 2013 (when ISIS invaded Iraq) and a period after the crisis, from 2014 to 2016, where things began to stabilize again. To test our assumptions, we employ panel data in Stata 14. According to the findings, firm type has no bearing on the connection between firm sustainability and trade credit, but it does moderate the connection between profit predictability and trade credit. Finally, firm type has a positive and statistically significant bearing on the connection between real earnings management and trade credit.

Do Determinants Influence the Capital Structure Decision in Bangladesh? A Panel Data Analysis

More than two decades, capital structure decision marked as variation from optimal decisions as determinants are not properly considered due to the collapse of corporate governance. This study examines the impact of determinants on capital structure decisions in Bangladesh using Fixed-Effect Model (FEM) and Panel Corrected Standard Error (PCSE). The study revealed that debt structure is considerably influenced by liquidity, firm size, asset structure, non-debt tax shield, and operational age of companies. The study also indicates that the companies, which are not financially, sound, but used more debt because the owners of such companies are politically empowered in stock market. The firms that hold less fixed assets (as a percentage of total assets, particularly the family-run and politically affiliated firms used more debt regardless of their tax bracket, profitability and growth—showed a greater capacity for increased debt. This study primarily focused on financial framework to make capital structure decision based on related determinants.

Beyond Borders: Uncertainty in Supragovernmental Tax Enforcement and Corporate Investment

ABSTRACT Amid growing globalization, many countries have offered tax incentives to attract corporate investment. Prior research studies the role such incentives play in firms' location and investment choices. However, we have limited evidence regarding the role that uncertainty about the intensity of future tax enforcement plays in those decisions. In 2013, the European Commission (E.C.) abruptly began investigating the tax-ruling practices of several countries in response to allegations that certain firms received preferential tax treatment (“state aid cases”). We use this setting to study the economic consequences of increased uncertainty about future tax enforcement. We find evidence consistent with significant reductions in U.S. multinational enterprises' subsidiary investments within, firm input purchases from, and aggregate investment of U.S. firms flowing to targeted state aid countries. Specifically, for U.S. multinational enterprises' subsidiary investments, we find fixed assets declined by 1.7 percent of total assets, or $7.6 million per subsidiary. JEL Classifications: M41; M48; H25; H26.

Looking for the Economy‐Wide Effects of Stock Market Short‐Termism

To investigate the widespread claim that stock market “short‐termism” is a major drag on U.S. corporate investment and the broad economy, the author examines the evidence on long‐run trends in corporate capital investment, buybacks, and R&D. As critics of market‐driven corporate short‐termism have pointed out, U.S. corporate investment in capital equipment and other tangible assets has been falling steadily since the late 1970s and buybacks are rising. But if the story of economy‐wide decline due to short‐termism were valid, we would expect to see the following: (1) investment spending in the United States declining faster than in Europe and Japan, where large companies depend less on stock markets for capital and shareholder activists are less influential; (2) cash from all the large share buybacks bleeding out from the U.S. corporate sector; and (3) economy‐wide declines in corporate R&D spending.What the author reports, however, is that real U.S. corporate R&D spending, has been steadily rising since the 1970s and rising faster than the economy is growing. And even as corporate distributions of capital through dividends and buybacks have also been rising sharply for decades, corporate cash holdings (as a percentage of total assets), are at near record‐high levels. The explanation for such high cash holdings together with record‐high payouts—and perhaps the author's most striking finding—is that such distributions, which tend to be concentrated among larger, mature companies, are closely matched by new corporate borrowings and stock issuance—the latter often by smaller (non‐S&P 500) companies. What's more, while there's an outflow of cash from the S&P 500 from net buybacks and borrowing, there's a substantial cash inflow into the non‐S&P 500 from net stock issuances and borrowing.Finally, the fact that capital spending by European and Japanese companies—which face neither U.S.‐style quarterly‐oriented stock markets nor aggressive activist investors—has been falling more rapidly than in American companies suggests that U.S. capital markets are not a major reason for declining capital investment. And, while there's good reason for further R&D support, the author suggests in closing, reversing the U.S. government's sharply declining spending on R&D since the global financial crisis is the low‐hanging R&D fruit that should be bolstered first.

Finance Financing Finance: Does Financial Innovation Crowd out Credit Creation by Diverting Consumers and Business Loans Back to the Financial Sector, and How This Affects the Banks’ Performance through Investment, and Lending?

The traditional innovation-growth view posits that financial innovations help facilitate risk sharing, complete the market, and ultimately improve allocative efficiency. However, financial innovations are often attributed as the root cause of the Global Financial Crisis, by engineering securities perceived to be safe but exposed to neglected risks. Financial engineering often is done by banks and investment houses led to the creation of structured products that often compete with conventional lending in the placement of the depositors’ money. Moreover, as there seems to have a lower risk (on paper) due to the use of innovative derivatives, they are often preferred over risky consumer and corporate financing. In this study, we tend to test this hypothesis and explore whether financial innovation crowd out consumer and corporate credit creation and would this affect the long-term returns and growth of banks in Pakistan. For this, we presented a model showing financial innovation (measured by off-balance sheet items as a percentage of total assets), affect bank growth (increase in deposits & net income) as well as profitability (ROE & ROA) indirectly through the mediation of investment, lending, and advance ratio to deposit (ADR). For this purpose, data of 25 banks operating in Pakistan were taken from the year 2010 to 2019, collected from annual reports. Data were analyzed using Structured Equation modeling. The results showed that financial innovation seems to have a negative and significant impact on ADR, however a positive impact on lending. This suggested that consumer and corporate finances might increase with financial innovations but compared to deposits, they are decreasing. This clearly showed that financial innovation crowds out credit creation. At the same time, its effect on investment seems to be significant. Moreover, among the three mediators, the only investment seems to have a positive effect on profitability but a negative effect on growth. The effect of credit creation on growth does not seem to be substantiated. The study showed that financial innovation does not seem to affect either profitability or growth in the above-mentioned mediation framework. Hence, the findings suggested that there are some downsides of financial innovation as it crowds out the credit creation process that could be a crucial engine of economic growth.

Environmental regulation and corporate R&D investment—evidence from a quasi-natural experiment

The question of whether environmental regulation stimulates innovation activities has long been important and controversial. This study explores an ideal setting, the low-carbon city pilot program conducted by the Chinese government as a quasi-natural experiment to address this question. We conduct a difference-in-differences approach to analyze the impact of environment regulation on R&D investment. We find that the program’s adoption has led to an increase in R&D investment of 0.145% as a percentage of total assets and 0.273% as a percentage of sales, indicating a positive effect of environmental regulation on R&D expenditures. The increase in R&D expenditures is greater for firms experiencing a larger increase in government subsidies, a greater decline in corporate tax or a greater improvement in financial condition following the low-carbon pilot program. A series of robustness tests support a causal interpretation of our findings and indicate that the observed effect of the low-carbon pilot program on corporate R&D investment is unlikely driven by chance. Our results provide in-depth insights into the economic consequences of low-carbon regulation policies which could be of interest to academic researchers and policymakers.

Local soldier fatalities and war profiteers: New tests of the political cost hypothesis

We test the political cost hypothesis using local soldier fatalities as a source of as-if-random variation in the threat of political costs for local defense firms. Soldier fatalities vary the threat of political costs for defense firms because the U.S. tradition of shared sacrifice during war vulgarizes war profits amid dead soldiers. Local defense firms record more income-decreasing accruals, equal to 1.17 percent of total assets, in response to a one standard deviation increase in local soldier fatalities (an additional 29 soldier fatalities in the average state-year). A wide variety of robustness tests corroborate our inferences.

Does gender diversity on banks' boards matter? Evidence from public bailouts

We are the first to examine the impact of gender diversity on banks' boards on the probability and size of public bailouts. Our findings, based on a sample of listed European banks over the period 2005–2017, suggest that banks with more gender-diverse boards are less likely to receive a public bailout and receive a lower amount of bailout funds as a percentage of total assets than banks with less gender-diverse boards. Specifically, an increase by one standard deviation in gender diversity decreases the probability of a bailout by at least 2.44%, a significant reduction considering that the unconditional probability is 18.7%. Gender diversity is also positively related to bank performance, as proxied by ROA and Tobin's Q and with dividend payout ratios, consistent with the hypothesis that female directors are better monitors than male directors. These results are robust to a variety of econometric approaches and provide support for recent reforms in several EU countries regarding gender quotas.

Bank’s Stability through Risk Factors Growth and Capital Ratio: Evidence from Kuwait

The objective of present study is to examine the effect of risk factors, and capital ratio along business and economic growth in stability of the banks in the case of Kuwait. For this purpose, 10 banks are selected for time period of 2010 to 2016, with the annual observations. Panel regression models like fixed and random effect are applied to check the significance of selected predictors on outcome factors of the study. The results of the study explain that there exists a significant impact of risk factors like liquidity and credit on the stability of the selected banks in the region of Kuwait. In addition, operational efficiency in the form of total expenditure as percent of total assets are also playing critical role. This study is contributing in existing literature from the context of stability and risk with the provision of some useful results.

Ownership structure, economic fluctuation, and capital structure: Evidence from China

AbstractWe investigate the influence of controlling shareholders, including governmental ownership, on the debt levels of Chinese firms during varying economic conditions. Consistent with previous research, we find that listed firms in China have significantly more short‐term debt than long‐term debt. We also find that as the percentage ownership of the largest shareholder increases, less debt (as a percentage of total assets) is generally preferred. During economic slowdowns, firms tend to reduce their short‐term debt levels, although long‐term debt appears to increase.Further tests reveal that entrepreneur‐controlled firms reduce long‐term debt during economic slowdowns, suggesting that they take into consideration the implications of changes in macroeconomic conditions for earnings and liquidity when making debt financing decisions. However, we also find that State‐controlled firms in China tend to increase short‐term borrowing during declines in macroeconomic conditions, consistent with the implications of “tunneling and propping.”

A Comparative Analysis of Non-Performing Assets in Selected Co-operative Banks in Thrissur District, Kerala

Non-Performing Assets is dreadful virus in the banking sector which affects the banks financial health. Mounting up of NPA reduces the profitability as well as the liquidity position of the banks. In this paper an attempt is made to do a comparative study of the NPAs of six co-operative banks in Thrissur district, Kerala over a time period of five years from 2012-13 to 2016-17. The trend in gross NPA, gross NPA as a percent of gross advance, gross NPA as a percent of total assets and net NPA as a percent of net advance were analyzed through CAGR and the banks were ranked according to their performance. It was found that NPA is having a positive trend over the years and the banks are working hard to manage it. A strong negative correlation was existing between net profit and gross NPA. Comparatively Bank V is performing well compared to others banks in managing their NPAs.

Does gender diversity in bank boards matter? Evidence from public bailouts

We are the first to examine the impact of gender diversity in bank boards on the probability and size of public bailouts. Our findings, based on a sample of listed European banks over the period 2007-2013, suggest that banks with a more gender-diverse board are less likely to receive a public bailout, and receive a lower amount of bailout funds (in the form of credit lines and capital injections) as a percentage of total assets. Specifically, an increase by one standard deviation in gender diversity decreases the probability of a bailout by at least 4%. Gender diversity is also negatively related to bank risk as proxied by the ratio of non-performing loans to total loans and positively related to bank profitability as proxied by ROA. Furthermore, consistent with previous literature, we also find that more gender-diverse bank boards have higher payout ratios, consistent with an agency costs hypothesis. Our findings are robust to a variety of econometric techniques, including instrumental-variables estimation.

Balance sheet and currency mismatch: evidence for Peruvian firms

In the Peruvian economy, as in other emerging economies, a significant portion of the debt held by firms is denominated in US dollars. While an exchange rate depreciation is likely to increase firm debt and influence investment and production plans, the literature finds weak or no evidence of this balance sheet effect. In this paper, I argue that this effect is observed in firms with a significant currency mismatch. I estimate the currency mismatch (defined as assets minus liabilities in US dollars and expressed as a percentage of total assets in domestic currency) from which the exchange rate has negative effects on firms’ investment. Using financial information from 74 non-financial Peruvian firms from 2002 to 2014, I find significant balance sheet effects for firms with a currency mismatch below − 10.4%.

The Effect of Corporate Taxation on Investment and Financial Policy: Evidence from the DPAD

This study estimates the investment, financing, and payout responses to variation in a firm's effective corporate income tax rate in the United States. I exploit quasi-experimental variation created by the Domestic Production Activities Deduction, a corporate tax expenditure created in 2005. A 1 percentage point reduction in tax rates increases investment by 4.7 percent of installed capital, increases payouts by 0.3 percent of sales, and decreases debt by 5.3 percent of total assets. These estimates suggest that lower corporate tax rates and faster accelerated depreciation each stimulate a similar increase in investment, per dollar in lost revenue. (JEL D22, D25, G31, G32, H25, H32)

EARNINGS MANAGEMENT AND DIVIDEND POLICY OF SMALL AND MEDIUM ENTERPRISES IN THAILAND1

This study aims to examine earnings management of 51 small and medium enterprises listed inMarket for Alternative Investment (MAI) of Thailand during 2005 – 2012. Earnings managementin this study is measured by discretionary accruals based on Kasznik Model (Kasznik, 1999) andKothari Model (Kothari et al., 2005). Additionally, this study also investigates the influence ofearnings management on dividend policy of these companies which are measured bytwo indicators, including dividend payout ratio and dividend yield, by employing fixed andrandom effects regression analyses. The findings reveal that listed companies in MAI had highearnings management due to high average discretionary accruals in absolute term whichequalled 11.91 percent of total assets based on Kasznik Model and 12.55 percent of total assetsbased on Kothari Model. Moreover, earnings management is found to have the positive influenceon dividend yield of listed companies in MAI. That is, one percent increase in discretionaryaccruals in absolute term as percentage of total assets will lead to about 0.2 percent increasein dividend yield. In contrast, earnings management is found to have no influence on dividendpayout ratio.Keywords: Earnings Management; Earnings Quality; Dividend Policy; SMES; Market forAlternative Investment; Thailand.