Post-financial Crisis Period Research Articles

Nonlinearities between bank stability and income diversification: A dynamic network data envelopment analysis approach

This study contributes to the ongoing debate about the cost-benefit tradeoff of income diversification in banking. Its main objective is to shed light on the non-linear effects of income diversification on the financial stability of a set of European commercial banks during the post-financial crisis period (2010–2019). From an efficiency perspective, we use a three-stage dynamic network slacks-based measure model to assess the financial stability of banks, including non-performing loans as a measure of risk that is carried over between two periods. Then, by performing a panel smooth transition regression model, we investigate the regime-switching behavior of the relationship between income diversification and bank stability by showing how these variables heterogeneously interact with each other. Our findings show that high levels of income diversification negatively and significantly impact bank financial stability regardless of the diversification index used. Important policy implications arise from our findings pertaining to the optimality of income diversification and financial stability of European banks.

Testing factor models in an emerging market: evidence from India

PurposeThis paper aims to investigate the explanatory power of the Fama-French five-factor model and compares it to the other asset pricing models. In addition, the paper examines the contributions of two additional factors: profitability and investment factor. The authors test the alternative four-factor models.Design/methodology/approachThe authors use stock returns data of BSE-500 listed firms for the Indian market, an emerging market, from 1999 to 2020, thus covering the post-Asian crisis and pre- and post-financial crisis (2007–2008) periods. The authors employ 75 and 96 portfolios based on different factors. To check the performance of asset pricing models, the authors also used the GRS F-statistics and factor spanning tests.FindingsThe authors find that the five-factor model and alternative four-factor model outperform the three-factor model. Contrary to the findings for the US, but similar to the Chinese stock market, the value factor is significant for the Indian stock market. Simultaneously, the authors also find that the investment factor has no explanatory power in the presence of the profitability factor in their sample.Originality/valueTo the best of the authors' knowledge, this is the most comprehensive study using data more than two decades. These results are based on 75 (25 × 3) portfolios based on size, value, profitability and investment. The authors also tested these results based on 96 (32 × 3) portfolios to check robustness, and these results still hold. Furthermore, the authors find that factors based on 2 × 3 sorting have higher explanatory power than those based on 2 × 2 and 2 × 2 × 2 × 2 sorting.

The Effect Of Good Corporate Governance Mechanism On The Financial Perofrmance Of Registered Banking Companies On The Stock Exchange

Corporate governance remains a major problem during the post-financial crisis period in the growing Asian markets like Indonesia. In particular, financial institutions have adopted corporate governance reforms to improve the protection of the interests of shareholders and stakeholders. The purpose of this study was to measure the corporate governance and performance in the banking sector which specifically determine a mechanism of corporate governance. This research is replicated frame the prior researchs. The difference is solely on the theoretical concept change. Independent variables used in this study is the size of the board of directors, the size of the board of commissioners, and independent commissioner. The dependent variable used in this study is banking performance (ROA). Samples from this study is the general banking company located in Indonesia are listed in the Indonesia Stock Exchange (IDX) in the period 2008-2010. This research data come from bank annual reports (annual report) in the period 2008-2010 obtained from the Indonesian Stock Exchange website, the Indonesian Banking Directory, Indonesian Capital Market Directory (ICMD). The analytical method used is multiple linear regression in accordance with the purpose of research which analyzes the influence of independent variables on the dependent variable. Purposive sampling method is used to determine the sample selection. From this method, obtained 26 samples of commercial banks. The total observing period is three years, so the total sample is 60 observations. The study shows that the size of the board of directors and size of the board of commissioners is a positive but not significant to banking performance. Second, the independent commissioners addressing negative and not significant to banking performance.

Post-crisis developments in young adults’ housing wealth

How has housing wealth inequality changed for young-adult households in the post-financial crisis period, and what is driving such change? We chart a path for subsequent studies by analysing the previously unexamined post-crisis housing wealth profile of young adults via different angles and using multiple inequality measures. Using household micro-data for 11 European countries ( Household Finance and Consumption Survey, 2010–2017) and the United States ( Survey of Consumer Finances, 2010–2016), we find that the accumulation of housing assets for 22–44 year olds is unevenly concentrated among high-income homeowners, over and above what would be expected given the well-known decline in homeownership. We describe and assess several potential drivers for these wealth profile changes, finding that the current explanations offered in the literature do not adequately account for the unequal wealth profile of young people. We conclude that a mix of dynamics, including housing market volatility, housing market configurations leading to uneven capital gains and losses, and the increased social selectivity of homeownership intersect to shape the ways that young adults navigate the housing market in post-crisis times.

Risk disclosure and financial performance: the case of Islamic and conventional banks in the GCC

PurposeThis study aims to explore the extent of risk disclosure (RD) among conventional banks (CBs) and Islamic banks (IBs) listed on stock markets in the Gulf cooperation council (GCC). It also examines the influence of RD on the banks’ financial performance as measured by return on assets (ROA) and return on equity (ROE).Design/methodology/approachThis study uses content analysis to examine RD in the annual reports of 16 CBs and 14 IBs in the GCC for a sample of 240 firm-year observations over the period 2007 to 2014.FindingsThe study shows no significant differences between the RD reported in the annual reports of CBs and that of IBs. On average, a CB reported 234 sentences while an IB disclosed 244 sentences of RD in its annual report. The authors also find that both types of banks had an upward trend over the periods. While the means of RD reported by CBs have significantly improved over the period, the RD reported by IBs has not. Similar results are also found when the authors compared the RD pre- and post-financial crisis period. Finally, the authors find that there is a significant association between RD and both models of financial performance (ROA and ROE) for IBs, after controlling other variables. However, RD has a significant association with only ROE for CBs.Research limitations/implicationsThe bank selection was restricted to publicly traded banks in the GCC. Other financial institutions and different types of industries were not considered. Further research could determine whether the results obtained in this study could be generalized to different industries in the GCC and or in other countries.Practical implicationsThis study provides evidence on the significant association between RD and the financial performance of CBs and IBs in GCC countries. This study could be helpful to regulatory authorities in encouraging banks to adopt the best practice of RD and thus promote banks’ transparency.Originality/valueThis is the first known study to examine the RD practices of both types of banks and their association with banks’ financial performance in five-GCC countries (Kuwait, Qatar, Saudi Arabia, United Arab Emirates and Bahrain), based on a longitudinal analysis of year-end annual reports, covering eight years period from 2007 to 2014.

What drives a firm's ES performance? Evidence from stock returns

This study empirically explores the dynamic relation between the environmental and social (ES) performance of a firm and its stock market returns. We find robust evidence that worse stock market performance increases firms’ efforts on ES activities. Specifically, firms are more likely to improve their product and diversity performance and enhance their ES strengths rather than reduce ES concerns after poor stock market performance. This finding that poor stock market performance precedes enhanced ES performance is present (i) in firms with more financial slack, (ii) in firms with higher customer awareness, (iii) during the post-financial crisis period, and (iv) when a firm's shareholder activism on ES issues is intense. Our results underscore the importance of stock market performance in corporate ES decisions.

Asian stock markets, a decade after global recession, coupled or decoupled?

AbstractThis paper examines the dynamics of price integration among Asian financial markets during the postfinancial crisis period. We employ the autoregressive distributed lag (ARDL) bounds test to analyze the long‐run relationships, and the nonlinear ARDL (NARDL) test to explore asymmetries in the stock price behavior. The cointegration results could not produce any conclusive evidence of long‐run relations between stock markets. The estimated NARDL model affirms the presence of asymmetries in the stock price behavior. Namely, in the long run, we find a significant relation among stock price decreases of some markets while the long‐run relations among price increases are almost absent. Furthermore, in the short run, only negative changes in the stock price exert significant influences on the price performance of peers. This study improves the previous research in the area by testing the asymmetric effects of stock price integration on portfolio optimizations for global investors.

The governance-production nexus of eco-efficiency in Chinese resource-based cities: A two-stage network DEA approach

For decades, resource-based cities in China have significantly contributed to China's socio-economic development. The heavy resource dependence of resource-based cities inevitably leads to a series of environmental problems. Mitigating environmental impacts in an unthinking manner might be disruptive for economic development. Improving eco-efficiency has been a crucial solution for protecting the environment while mitigating its negative economic impact. However, the method commonly used to evaluate the eco-efficiency – that is, the black-box data envelopment analysis (DEA) – cannot examine the inefficiencies of the internal structure, and as a result, the underlying management defects are unclear. To open the black box, this study presents a two-stage network DEA framework incorporating government and industrial sectors and measures the eco-efficiency of 84 resource-based cities during the post-financial crisis period (2007–2015). The results indicate that the average eco-efficiency of China's resource-based cities shows a promising increase, and there is a positive relationship between governance efficiency and production efficiency. The decreasing trend of governance efficiency in the Central, Western, and Northeast regions after 2014 shows the low quality of the government sector in the usage of fiscal income. Proactive disclosure of how the government sector conducts public business and spends taxpayers' money should be made to increase transparency, attract more entrepreneurial resources to carry out production activities, and further improve sustainability. The two-stage network DEA framework helps obtain more insights into the internal management defects of the government and industrial sectors and enhance their cooperation to improve the eco-efficiency precisely.

Application of Taylor Rule Fundamentals in Forecasting Exchange Rates

This paper examines the effectiveness of the Taylor rule in contemporary times by investigating the exchange rate forecastability of selected four Organisation for Economic Co-operation and Development (OECD) member countries vis-à-vis the U.S. It employs various Taylor rule models with a non-drift random walk using monthly data from 1995 to 2019. The efficacy of the model is demonstrated by analyzing the pre- and post-financial crisis periods for forecasting exchange rates. The out-of-sample forecast results reveal that the best performing model is the symmetric model with no interest rate smoothing, heterogeneous coefficients and a constant. In particular, the results show that for the pre-financial crisis period, the Taylor rule was effective. However, the post-financial crisis period shows that the Taylor rule is ineffective in forecasting exchange rates. In addition, the sensitivity analysis suggests that a small window size outperforms a larger window size.

Enhanced Prudential Standards Under Basel Iii: What Consequences For The Profitability Of Banks

Since the subprime financial crisis, international financial regulatory institutions (Basel, MIFID, Dodd-Frank), have strengthened regulatory requirements on systemically important banks. The Basel Committee on Banking Supervision, and based on the G20 recommendations, has drawn up a reform program to reconfigure the banking system, based mainly on increasing the capital requirement. The program has caused strong resistance from the banking industry leaders, saying that an excessive increase in regulatory capital will lead to an increase in the cost of financing of banks, which will have a negative impact on their profitability, and affect in fine the entire economic system. Due to the divergence of opinions regarding the impact of increasing capital requirements on the banking system, and the drastic lack of empirical literature on the Moroccan banking sector, we have decided to direct our research to fill this empirical deficiency. The main question we want to answer through our analytical approach, is how enhanced capital regulation would impact financial performance of the banking industry? Tio which extent this impact could be alleviated through risk management policies? To do so, and based on the empirical literature on this topic, we have conducted an analytical study, through Mathematical Modeling Analysis to compute the impact of the implementation of reinforced capital regulations on the profitability of banks.The goal of this article is to present the results of the impact analysis on the profitability of Moroccan banks using regression model applied to panel data, covering the 2010-2017 time period. The relevance of this study is derived from the several reforms applied to regulation of capital in the worldwide banking industry during the post-financial crisis period, including Morocco. In Morocco, Bank Al Maghrib, the regulator of banks, introduced reforms in the regulation of capital, through circular 14 / G / 2014 and circular 1 / W / 2016, modifying and strengthening the solvency ratios. This article presents the results of an impact study conducted based on the Panel's Multiple Data Regression Model and applied to 6 Moroccan banks during the post-financial crisis period, i.e., 2010-2017.

Risk Disclosure and Financial Performance: The Case of Islamic and Conventional Banks in the GCC

Purpose – This study aims to explore the extent of risk disclosure (RD) among conventional banks (CBs) and Islamic banks (IBs) listed on stock markets in the Gulf cooperation council (GCC). It also examines the influence of RD on the banks’ financial performance as measured by return on assets (ROA) and return on equity (ROE). Design/methodology/approach – This study uses content analysis to examine RD in the annual reports of 16 CBs and 14 IBs in the GCC for a sample of 240 firm-year observations over the period 2007 to 2014. Findings – The study shows no significant differences between the RD reported in the annual reports of CBs and that of IBs. On average, a CB reported 234 sentences while an IB disclosed 244 sentences of RD in its annual report. The authors also find that both types of banks had an upward trend over the periods. While the means of RD reported by CBs have significantly improved over the period, the RD reported by IBs has not. Similar results are also found when the authors compared the RD pre- and post-financial crisis period. Finally, the authors find that there is a significant association between RD and both models of financial performance (ROA and ROE) for IBs, after controlling other variables. However, RD has a significant association with only ROE for CBs. Research limitations/implications – The bank selection was restricted to publicly traded banks in the GCC. Other financial institutions and different types of industries were not considered. Further research could determine whether the results obtained in this study could be generalized to different industries in the GCC and or in other countries. Practical implications – This study provides evidence on the significant association between RD and the financial performance of CBs and IBs in GCC countries. This study could be helpful to regulatory authorities in encouraging banks to adopt the best practice of RD and thus promote banks’ transparency. Originality/value – This is the first known study to examine the RD practices of both types of banks and their association with banks’ financial performance in five-GCC countries (Kuwait, Qatar, Saudi Arabia, United Arab Emirates and Bahrain), based on a longitudinal analysis of year-end annual reports, covering eight years period from 2007 to 2014.

Firm’s globalization and wage elasticity of labour demand in South Korea

ABSTRACT This study investigates the effects of exports and overseas investments on the wage elasticity of labour demand for both foreign multinational corporations (MNCs) and Korean MNCs using a 2006–2015 firm-level unbalanced panel dataset from South Korea. I employ the system generalized method of moments to estimate a dynamic labour demand function to solve the problem of reverse causality due to potential endogeneity. The results suggest that exports play a critical role in increasing wage elasticity among foreign MNCs, whereas overseas investments render labour demand more elastic among both foreign MNCs and Korean MNCs. Particularly, these effects of globalization on increasing wage elasticity became strengthened among foreign MNCs during the post-financial crisis period. Moreover, the intra-firm and inter-firm exports of foreign MNCs from OECD nations, which reflect the vertical integration of foreign MNCs with their affiliated firms, increase the wage elasticity of labour demand. Since overseas investments induce higher wage elasticity of labour demand, overseas investment substitutes for local production activity. These empirical results imply that the rapid pace of globalization exacerbates the instability of the local labour market, and the aggravation of employment vulnerability during the post-crisis period is driven by foreign MNC activity.

The FOMC announcement returns on long-term US and German bond futures

• We examine the impact of FOMC announcements on long-term US and German government bond futures. • Using transaction-level data during the post–financial crisis period, we observe a sizable post-announcement drift in government bond markets. • A trading strategy yields up to four times the Sharpe ratio of buy-and-hold investment. • The post-FOMC drift coincides with more informative order flows in the post-announcement period. • Post-FOMC announcement drift in the government bond futures persists for 15 days. We examine the impact of monetary policy announcements by the Federal Open Market Committee (FOMC) on long-term US and German bond futures. Using transaction-level data during the post-financial crisis period, we observe a sizable post-announcement drift in government bond markets. A trading strategy of investing in the market after expansionary shocks and shorting the market following contractionary surprises yields up to four times the Sharpe ratio of buy-and-hold investment. The post-FOMC announcement drift coincides with more informative order flows in the post-announcement period, and it persists for 15 days. Moreover, our study shows an absence of pre-FOMC announcement drift. Our findings shed some light on how the bond markets react to public news arrival.

How Does Risk-based Deposit Insurance Premium Affect Bank Risk Taking? Islamic Bank vis a vis Conventional Bank

Central banks across the world implemented deposit insurance system as a major risk management practice in the post Global Financial Crisis (2007/2008) period. This study provides insights on the efficacy of deposit insurance policy in the Malaysian market where Islamic and conventional banking co-exist. Given that Islamic banking principles inherently limitsbank risk taking ability, the study findings clearly identify the pertinent role of risk-based deposit insurance premium on mitigating potential increase bank risk in the post-financial crisis period. Using Malaysian banks data for the period 2002-2010, this study findsthat Islamic banks have lower risk appetite than conventional banks. Most importantly, after the introduction of deposit insurance system, insolvency and operational risk increasemainly for conventional banks owing to inadequate premium. This calls for policymakers to carefully consider design features for an effective risk-based DI system that is risk-premium sensitive to ensure financial stability. Other policy implications include that the risk-based deposit insurance premium would prevent regulatory arbitrage,while Shariahcomplianceprinciples preventthe Islamic banks from adjusting their risk after the introduction of a deposit insurance system. Worth mentioning is the institution of an early warning mechanism policy as well as formal cooperation in information sharing protocols among policy makers, regulators and deposit insurance organisations to minimiseoperational risk in banks.

Connectedness Among Economic Policy Uncertainties: Evidence from the Time and Frequency Domain Perspectives

AbstractThis paper investigates the frequency connectedness among economic policy uncertainties of G20 countries using the novel frequency connectedness proposed by Barunik and Krehlik (2018) which can depict the dynamic connectedness not only over time but also across different frequencies. The empirical results obtained in this paper demonstrate that, firstly, the connectedness among economic policy uncertainties is significant, and the spillover effects during the financial crisis and the post-financial crisis period are stronger than the pre-financial crisis period. Secondly, the United States, France, and Australia are the main net-transmitters of the economic policy uncertainty spillovers while Brazil, Italy, Mexico, and Russia act as the main net-recipients of the spillovers. Thirdly, the major international events may significantly enhance the spillover transmissions of economic policy uncertainty among different countries, thus increasing the magnitude of the total connectedness. Finally, the economic policy uncertainty spillovers are mainly transmitted in the short term, i.e., 1∼4 months instead of longer time horizons in terms of the magnitude of the frequency connectedness measures. The findings of this paper not only have profound theoretical and practical significance but also provide several significant implications for the policymakers, supervision agents, international traders, and various investors.

Real effects of real estate: evidence from unemployment rates

PurposeThis paper aims to investigate the relationship between residential real estate prices and unemployment rates at the Metropolitan Statistical Area (MSA) level.Design/methodology/approachThis paper uses a long time-series of MSA-level quarterly data from 1990 to 2018. It uses an instrumental variable approach to estimate the effects of residential real estate prices on unemployment rates using the geography-based land constraints measure of Saiz (2010) as the instrument.FindingsThe results show that changes in residential real estate prices do not have a causal effect on unemployment rates in the same quarter. However, it takes 9-12 months for an increase (decrease) in real estate prices to decrease (increase) unemployment rates. This effect is significant during both pre- and post-financial crisis periods and robust to control for the economic characteristics of MSAs.Research limitations/implicationsThis paper contributes to the emerging literature that studies the real effects of real estate. Particularly, the methodology and the findings can be used to investigate causal relationships between housing prices and small business development or economic growth. The findings are also of interest to policymakers and practitioners as they illustrate how and when real estate price shocks propagate to the real economy through unemployment rates.Practical implicationsThis study’s findings have important implications for academics, policymakers and investors as they provide evidence of a snowball effect associated with shocks to real estate prices: increasing (decreasing) unemployment rates following a decrease (increase) in real estate prices exacerbates the real estate price movements and their economic consequences.Originality/valueThis paper analyzes a significantly longer period, from 1990 to 2018, than the existing literature. Additionally, it uses the MSA-level land unavailability measure of Saiz (2010) as an instrument to explore the effects of residential real estate prices on unemployment rates and when those effects are observed in the real economy.

Volatility Spillover between Currency and Stock Markets in Financial Crisis Period: Evidence from China

The study aims to investigate the volatility spillover between the currency and stock markets of China for the period from January 01, 2004 to December 31, 2013. The time frame is divided in to pre, amid and post-financial crises periods. “Generalized Autoregressive Conditional Hetroskedasticity (GARCH)” model is used to analyze the shock spread between these markets. The findings suggest significant bidirectional volatility spillover between the currency and stock markets in amidst and post-financial crisis periods. However, the spillover is more pronounced from currency to stock market in the post-financial crisis case. Moreover, unidirectional volatility flow form stock to currency market was observed in the pre-crisis era. The study helps the regulators to make policies that protect the financial markets from shocks. Similarly, the investors can get advantage, i.e. avoid risk and increase returns by diversifying their investment in non-correlated markets.

Does volatility transmission between stock market returns of Central and Eastern European countries vary from normal to turbulent periods?

AbstractThis study investigates the transmission mechanism of price and volatility spillovers across the Budapest, Warsaw, Prague, Bucharest, and Zagreb stock markets in the pre- and post-financial crisis periods under the framework of the multivariate Exponential Generalized Autoregressive Conditional Heteroskedasticity (EGARCH) model. By using daily closing prices, the results highlight certain interesting findings. I found evidence of price spillovers of the intraregional linkages among the stock price movements in five countries. This analysis shows the existence of bi-directional volatility spillovers between stock markets of the Czech Republic and Croatia in the pre-crisis period, and between Hungary and Romania in the post-crisis period. Also, there are significant volatility spillovers from Croatia to Poland and from Poland to the Czech Republic during two periods. The volatility is found to respond asymmetrically to innovations in other markets. The findings also indicate that the stock markets are more substantially integrated into crisis, as well as the persistence of volatility spillovers between the stock markets increases, and the financial stock markets become more integrated after the crisis period.

Do employee-friendly firms invest more efficiently? Evidence from labor investment efficiency

We investigate the impact of employee treatment on labor investment efficiency. We provide evidence that employee-friendly treatment is significantly associated with lower deviations of labor investment from the level justified by economic fundamentals, i.e., higher labor investment efficiency. The effect of employee treatment on labor investment efficiency is stronger for firms that are human-capital-intensive, with more skilled labor and knowledge capital, and those that face higher product market competition. Using the 2008–2009 financial crisis as an external shock and applying the difference-in-difference method, we also show that employee-friendly firms have higher labor investment efficiency in the post-financial crisis period, but experience more inefficient labor investments during the crisis. Our results are robust to placebo tests, selection bias, propensity score matching, alternative explanations, alternative proxies for both employee treatment and labor investment efficiency as well as the adjustment for using residuals as dependent variables, additional control variables, and various approaches in addressing endogeneity issues.

CEO chairman controversy: evidence from the post financial crisis period

Regulators generally discourage bank CEOs also holding the role of board Chairman, as this governance structure can hinder independent decision-making and effective risk oversight. This study examines the issue of CEO Duality, identifying a positive relation to greater risk-taking across a battery of sensitivity tests. In further analysis, the study controls for differences in supervisory monitoring levels to examine its impact. Banks led by CEO Chairmen which are subject to lower levels of supervision continue to report a robust association to risk-taking, as before. However, this association dissipates for banks which are subject to heightened supervisory monitoring. These findings indicate that agency costs related to Duality may be moderated by greater regulation. This paper weighs-in on the controversy relating to a single contentious governance structure (i.e., CEO Duality), thus informing boards, regulators and researchers of the need to consider the overall interplay of monitoring mechanisms.