Post-global Financial Crisis Period Research Articles

International trade, mandatory IFRS adoption and financial reporting quality

Purpose This study examines how bilateral international trade among mandatory International Financial Reporting Standards (IFRS) adopter countries moderates the relation between IFRS adoption and firms’ financial reporting quality. Design/methodology/approach The authors use data from 2007 to 2015 and focus on publicly listed firms from non-European Union countries that adopted IFRS on a mandatory basis. Findings The authors find that the interaction between mandatory IFRS adoption and a country’s bilateral trade with other countries using IFRS is negatively and significantly related to accruals-based earnings management, which is an inverse measure of financial reporting quality. This result is driven by firms in less developed countries. The improvement in accounting quality is for firms located in countries that both fully and partially adopt IFRS. The authors also find a significant and negative coefficient for the relation between real earnings management and the interaction between mandatory IFRS adoption and a country’s bilateral trade with other IFRS countries in the post-global financial crisis period. Originality/value Overall, the authors’ results are consistent with the notion that the mandatory adoption of IFRS creates a positive externality where firms improve their accounting quality because increased financial statement comparability means that foreign customers and suppliers can monitor the quality of earnings more easily.

Risk Transmission of Foreign Subsidiary in ASEAN Emerging Countries

Research Originality: To the best of our knowledge, this study is the first to investigate the impact of home country parent bank risks on destination country subsidiaries in an ASEAN setting. Moreover, this study adds to the previous literature by using the post-global financial crisis period in ASEAN countries, various types of risks, and dynamic panel data.Research Objectives: This study aims to examine the association between parent and foreign subsidiary banks. The study also examines how bank regulation, national governance, and financial deepening in host countries affect the association.Research Methods: This study uses dynamic panel data of 43 foreign banks operating in ASEAN emerging countries during the period 2010-2018.Empirical Results: The findings indicate a significantly positive association between parent and subsidiary bank risk, particularly for credit and liquidity risks. National governance and bank regulation mitigate the risk transmission. In contrast, financial deepening amplifies the transmission of risks between parent and subsidiary banks.Implications: This finding has important implications, in terms of policy interventions and regulatory mechanisms that national governments can deploy to lower risk exposure of subsidiary banks, while at the same time encouraging foreign investments into the financial services sectors in ASEAN countries.JEL Classification: F30, G21, G32How to Cite:Karyani, E., & Agusman. (2024). Risk Transmission of Foreign Subsidiary: Evidence from ASEAN Emerging Countries. Etikonomi, 23(1), 129 – 146. https://doi.org/10.15408/etk.v23i1.32703.

The effects of economic uncertainty and economic policy uncertainty on banks’ loan loss provision in Brazil

This paper investigates the effects of economic uncertainty and economic policy uncertainty on banks’ loan loss provision in Brazil, and it seeks to identify which uncertainties have the greatest impact on loan loss provisions. Regarding uncertainties, it is possible to proxy economic uncertainty and economic policy uncertainty through disagreements among professional forecasters and through news-based proxies. Thus, as a novelty, disagreements among professional forecasters are used to proxy both economic and economic policy uncertainties, and for checking robustness, news-based proxies are employed. The disagreements in expectations are divided into two groups: the first focuses on uncertainties related to economic policy instruments (i.e., monetary policy interest rate and primary surplus), and the second on uncertainties related to economic outcomes (i.e., inflation, exchange rate, GDP growth, and public debt). Regarding the news-based proxies of economic policy uncertainty and economic uncertainty, two indicators were employed: the first is the Economic Policy Uncertainty index, and the second is the index of economic uncertainty unrelated to economic policy that we calculate. Based on dynamic panel data analysis for 125 Brazilian banks, the findings suggest uncertainties in economic outcomes have greater influence on banking provisions than uncertainties in economic policy. The study validates the results using news-based indexes and a subsample representing the post-global financial crisis period.

Post global financial crisis multiplex financial network structure longevity: Does it predict re-globalization? Empirical investigation for 234 countries

Research background: International capital flows show decreasing trend after each financial crisis as countries become unwilling to invest in risky counterparties. Recent discussions over structural changes within the global financial network suggest that its structure may be still undergoing some changes. Uncovered weaknesses of over-connectedness with unstable un-ally countries during global financial crisis were further highlighted by recent Covid-19 pandemic. However, previous research suggest that important structural changes happened after global financial crisis. Thus, such situation raises a question whether post global financial crisis multiplex network structure is long-term and is it exhibiting re-globalization pattern as suggested by re-globalization megatrend. Purpose of the article: The main objective of the paper is to assess post global financial crisis multiplex financial network structure longevity and to identify whether it exhibits re-globalization pattern. Methods: Multiplex financial network mapping, network topological analysis and structure longevity methods were employed to evaluate network connectedness, topological structural properties of multiplex financial network and its’ structure longevity. 5-layer multiplex financial network was mapped for different types of capital flows for each layer: net direct and portfolio investments in debt, equity and net banking assets for each year in the post global financial crisis period 2009–2020. Each network layer employed bilateral data from up to 234 countries of the world. Next step of research employed a set of network-level measures defining topological features of each network in the period of 2009–2020 in order to capture the trend of structural changes and evidence of re-globalization. The final stage analyzes multiplex financial network structure by layer and country longevity. Findings & value added: Analysis reveals that stock (positions) multiplex financial network aggregate connectedness, i.e., density and value, increased during post- global financial crisis period until Covid-19 pandemic period, thus, suggesting that globalization in terms of stock is continuing. Topological structural properties of multiplex financial network changed as number of strongly and weakly connected countries decreased and more countries became included in network. Longevity analysis of layer and country structure within multiplex financial network reveal that banking and debt investments are increasing since 2018, while equity part is decreasing. Developed countries, i.e., the United Kingdom and Germany, decrease in multiplex financial network structure, while developing, especially from Asia region (i.e., Hong Kong SAR, China and Singapore) increase. Such empirical results support the re-globalization megatrend in terms of investment type and counterparty structure as highlighted by most recent scientific discussion showing that it started early after global financial crisis. Research also uncovers some regional trends of Asia region increasing in investment network structure, while Europe decreasing. As developing countries attract more and more investment and further develop, global cost saving and, thus, returns from global investment into these countries may be decreasing, resulting in lower gain from globalization. Our analysis may facilitate investment strategy decisions by suggesting that even though gains from globalization might be decreasing, instead of localization, countries could follow ally investment strategy to manage the risk of over-dependency from unstable counterparty while preserving globalization wealth.

Effects of macroprudential policies on ecological footprint: the moderating role of environmental policy stringency in the top 11 largest countries

This study investigates the impact of macroprudential policies on ecological footprint (EF) in the top 11 largest countries. This study uses country-level panel data from these countries, covering the period from 1992 to 2020. Findings indicate that macroprudential policies alleviates ecological footprint in the sample. Macroprudential policies primarily reduce the ecological footprint before medium quantile (50%) while the environmental benefits of the policies end in the later quantiles. Moreover, environmental policy stringency (EPS) amplifies the positive influence of macroprudential policies on environmental sustainability. Estimate results stay the same with basic regression results in the post-global financial crisis (GFC) period while the impact is positive in the pre-GFC period. Finally, other robust tests validate the findings reported in basic regression model. This study suggests that governments should customize various types of macroprudential policies while also considering environmental concerns. The achievement of a sustainable environment can be facilitated by the combined effects of macroprudential policies and EPS.

Vine Copula Approach to Understand the Financial Dependence of the Istanbul Stock Exchange Index

AbstractRecently, the complex dependence patterns among various stocks gained more importance. Measuring the dependency structure is critical for investors to manage their portfolio risks. Since the global financial crisis, researchers have been more interested in studying the dynamics of dependency within stock markets by using novel methodologies. This study aims to investigate a Regular-Vine copula approach to estimate the interdependence structure of the Istanbul Stock Exchange index (ISE100). For this purpose, we consider 32 stocks related to 6 sectors belonging to ISE100. To reflect the time-varying impacts of the 2008–2009 global financial crisis, the dependence analysis is conducted over pre-, during-, and post-global financial crisis periods. Portfolio analysis is considered via a rolling window approach to capture the changes in the dependence. We compare the Regular-Vine-based generalized autoregressive conditional heteroskedasticity (GARCH) against the conventional GARCH model with different innovations. Value at risk and expected shortfall risk measures are used to validate the models. Additionally, for the constructed portfolios, return performance is summarized using both Sharpe and Sortino ratios. To test the ability of the considered Regular-Vine approach on ISE100, another evaluation has been done during the COVID-19 pandemic crisis with various parameter settings. The main findings across different risky periods illustrate the suitability of using the Regular-vine GARCH approach to model the complex dependence among stocks in emerging market conditions.

Macroprudential policies and CO2 emissions: A comparative analysis of G7 and BRIC countries.

This study investigates the impact of macroprudential policies on CO2 emissions in G7 and BRIC countries using country-level panel data from 11 countries, covering the period from 1992 to 2020. The findings indicate that macroprudential policies alleviate CO2 emissions in the sample. Quantile regression results reveal that policies can exacerbate CO2 emissions in countries with high levels of CO2 emissions due to carbon leakage. The positive impact of macroprudential policies on sustainable development can be strengthened by high level of globalisation. Moreover, the influence of macroprudential policies stayed the same based on the basic regression results during the post-global financial crisis (GFC) period, while the impact was positive in the pre-GFC period. Finally, robust tests validated the findings reported in the basic regression model. From this, policymakers should prioritise sustainable economic growth when implementing macroprudential policies and leverage the influence of globalisation to amplify their impact on CO2 emissions. Furthermore, it is crucial to strengthen environmental regulations to prevent carbon leakage that result from industries seeking lenient standards.

Exploring Volatility Spillover Dynamics between Emerging South Asian Stock Markets and the U.S. Market: Empirical Insights from the M-GARCH-BEKK Framework

Abstract: This study investigates the volatility spillover between emerging South Asian equity markets and developed U.S. market. Specifically, the study examines the entire sample period and three sub-periods: pre-crisis, crisis, and post-Global Financial Crisis (GFC) periods in the emerging markets of Pakistan, India, and Sri Lanka, as well as the U.S. as developed stock market. The study analyses both unidirectional and bidirectional shock and volatility spillover among the markets to determine the direction of risk transmissions. The analysis utilizes a multivariate GARCH-BEKK model. The results indicate that volatility transmissions increased due to the GFC. Furthermore, the South Asian emerging markets exhibit shock and volatility spillover during the crisis period compared to the pre- and post-crisis periods. Additionally, the patterns of risk transmission were time-varying. These findings support the notion that market volatility increases during turbulent events, such as the Global Financial Crisis. The implications of these results are important for policymakers, investors, and researchers interested in international diversification and market efficiency within the studied markets especially during turbulent periods.

A time-varying Granger causality analysis between water stock and green stocks using novel approaches

This study examined the Granger-causality between global water stock and global green stocks (MSCI global environmental index, global alternative energy index, global pollution prevention index and global green building index) using a battery of innovative causality methods with available daily data covering 23rd June 2009 to 23rd June 2022. Empirical results reveal many episodes of causality between global water stock and each of the global green stocks during the study period, including the post-global financial crisis and COVID-19 periods. The Granger-causality between the stocks was also noticed at different market periods and frequencies. Thus, the results confirmed the water-energy nexus and water-environment nexus. These results informed some policy recommendations to ensure sustainable economic development.

Do actively managed equity funds add value in developing economies? – The case of ‘inverse Gruber puzzle’ in Pakistan

PurposeThis paper evaluates the performance of actively managed conventional and Islamic equity funds in a developing economy with a focus to assess the performance-growth puzzle posited by Gruber (1993) (a.k.a Gruber’s puzzle). Under the context of an emerging market of Pakistan, this study explores if actively managed equity fund (AMEF) managers have been able to add value by outperforming the market in terms of stock-selection and market-timing abilities; and the comparative performance analysis of Islamic versus conventional AMEFs is also carried out.Design/methodology/approachWe employ Sharpe and Treynor ratios, Capital asset pricing model, Fama–French three factors model (1993), Carhart four-factor model (1997) and Hendrickson (1981) market timing models on 45 equity funds comprising of 23 conventional and 22 Islamic equity funds operating in Pakistan for a period of 10 years. The overall sample period (2008–2018) is divided into two 5 years sub-periods (i.e. 2009–2013 and 2014–2018) and three 3 years sub-periods (2009–2011, 2012–2014 and 2015–2017) to be viewed in conjunction with the country's macro-economic condition.FindingsWe report that the actively managed equity funds (AMEFs) were unable to beat the market index with their stock selection or market timing capabilities. However, AMEFs depicted improved performance in the post-global financial crisis period where both conventional and Islamic AMEFs generated substantial rewards for the given amount of risk. Also, conventional AMEFs outperformed Islamic AMEFs potentially due to their holdings in highly leveraged value and large-cap stocks, while Islamic AMEFS invest more cautiously in small-cap and value firms. Analysis of market timing skills revealed that the funds have not been able to select the undervalued stocks and adopted a defensive strategy in the post-global financial crisis recovery period.Practical implicationsOur findings shed some interesting insights and raise some pertinent questions for research, policy, and practice – specifically for developing countries’ context. The no ‘return-growth’ configuration defies its fit with the ‘Gruber puzzle’ and somewhat presents a case of what we call the ‘Inverse Grubber puzzle’. This novel notion of the ‘Inverse Grubber puzzle’ should inform policy and practice to reflect on their practices, institutional arrangement, regulatory framework and policy design in developing economies characterized by lacklustre performance and growth of AMEFs. For example, the regulatory design may consider focusing on stimulating financial inclusion and deepening by motivating low-cost Index tracker funds (ITFs) – with lower fund management costs, while allocating the avoided cost to flow towards effective marketing campaigns driving greater awareness, financial deepening, and investor base diversification. For future research, financial development researchers may explore the implications and appropriateness of AMEFs versus ITFs in other developing economies.Originality/valueThe work reported in this paper is original and constitutes a valuable asset for ethno-religious-sensitive investors. The research has not been published in any capacity and is not under consideration for publication elsewhere.

Real-Time Identification and High-Frequency Analysis of Deposits Outflows

AbstractWe propose a method based on control charts to identify in real-time sudden deposits outflows through the payment system. The performance of the methodology is assessed with both Monte Carlo simulations and real transaction-level TARGET2 data for a large sample of Italian banks. We identify a set of idiosyncratic bank stress episodes. Using high-frequency payment system data, we provide new evidences on the interaction between retail, wholesale, and central bank funding in the post global financial crisis period.

Central bank asset purchases, banks’ risky security holdings and profitability: Macro and micro evidence from Japan and the U.S.

By focusing exclusively on risky securities and conducting cross-country analyses at both macro and micro levels -- a different approach than those employed in the existing literature -- this paper attempts to shed light on the under-explored yet important issue of banks’ dynamic portfolio optimization in times of unconventional monetary policy. It explores how and why banks adjust their risky security holdings in the context of central bank asset purchases. The macro and micro evidence from Japan and the U.S. suggests that banks may adjust their risky security holdings to optimize their profitability over the post-global financial crisis period. Interesting differences are also found in the pattern of adjustment of risky security holdings between the two countries. These findings provide new insights not only into the risk-taking and portfolio-rebalancing channels of unconventional monetary policy, but also into the link between unconventional monetary policy and bank profitability.

Das reformas liberalizantes ao pós-crise financeira global: a visão em mudança do FMI sobre liberalização da conta financeira e controles de capital

Abstract The view of the International Monetary Fund (IMF) on capital account liberalization and capital controls has undergone important reassessments over the past two and a half decades. Several financial crises, including the 2007-2008 global financial one (GFC), propelled it to partially defend the use of capital controls to eliminate certain dysfunctions, such as financial risks and pressures on exchange rate appreciation. Our study shows that this reorientation in the scope of IMF articles also configured a response to empirical studies that pointed to flaws in orthodox theory about capital account liberalization and those that investigated the effectiveness of capital controls in emerging economies in the post-global financial crisis period. However, we are yet to find no explicit defense in favor of the use of capital controls and the permanent management of exchange rates, despite relevant empirical evidence indicating the effectiveness of these measures.

A Comparative Analysis of the Investment- and Speculative-Sovereign Credit Ratings

This paper examines the variability of emphasis on sovereign credit ratings (SCRs) issued by three leading credit rating agencies: Moody’s, S&P, and Fitch. Using the sample of 55 countries with observations from year 1998 to 2017, this study reveals a clear variation of emphasis on these determinants in assessing the investment-grade versus speculative-grade rated countries. For the speculative-grade rated countries, only determinants representing the Institutional and Susceptibility to External Event factors matter during the post-global financial crisis (GFC) period. Despite the observed variabilities, there is no evidence to support the argument that the CRAs changed their criteria in SCR determination after the global financial crisis. The seven-determinant model continues to have high predictive power for SCRs of all three leading issuers in a rage of 68 to 71% for investment-grade ratings and 81 to 87% for speculative-grade ratings.

Climate factor and banks’ resilience: Evidence from US banks

This study explores how the climate factor impacts the resilience of the US banking system. Using an extended sample of banks, spanning the period 2000-2020, the findings document a negative effect of this climate factor on banks’ resilience. They also highlight the role of climate risk over the post-global financial crisis period. The results could have a substantial value as climate conditions can serve as an early warning system for policymakers and regulators in detecting signs of weakness, calling for immediate actions to mitigate potential vulnerabilities of banks.

Age, wage and vintage: Empirical validation of brain drain in the migration of Indian knowledge workers to the United States of America

This article examines the effects of brain drain caused by the migration of knowledge workers from India to the United States of America (USA) during the pre- and post-global financial crisis periods, 2005–2007 and 2011–2013. Data from the Integrated Public Use Microdata Series for the year 2018 are used to compare the different population groups in the USA and to estimate the hourly wages of Indian and White workers using Mincer regression and Oaxaca decomposition. Following Khadria’s (2001–2010) analytical propositions, three premium characteristics of Indian-origin workers to the USA consisting of: (1) an age-premium, (2) a wage-premium and (3) a vintage-premium are empirically examined. The findings uphold the theoretical construct and suggest that the migration of Indian knowledge workers to the USA results in brain drain to India and brain gain for the USA.

Yield curve shapes and foreign exchange rates: the term structure of interest rates model approach

ABSTRACT Exchange rates play a crucial role in the international economy. This study investigates the explanatory power of yield curve factors in exchange rate predictions for countries in three currency pairs: Japanese yen (JPY)–US dollar (USD), British pound (GBP)–USD, and Canadian dollar (CAD)–USD. The results empirically establish that each country’s yield curve factors, extracted from the term structure of interest rates model, play a key role in determining future exchange rates. Specifically, an increase in the US level factor causes depreciation in the USD relative to the JPY for the full sample period (June 1994–October 2020) and in the GBP and CAD for the post-global financial crisis period. The study’s model provides more useful information than the baseline uncovered interest rate parity model for explaining the variations in the three currency pairs. Additionally, the yield curve factors also explain the variation in countries’ excess currency returns. This study has important theoretical implications for identifying which of the two countries’ yield curve factors predominantly explain the exchange rate changes and the related policy implications. It also provides key policy insights by substantiating the association between macroeconomic variables and exchange rate changes.

통화정책의 불확실성은 주택가격에 영향을 미치는가?

This paper empirically examines the impact of different regimes of monetary policy uncertainty(MPU) index on housing sales and jeonse price volatility covering the period from January 1990 to December 2021 with adopting Markov regime switching. The anaysis result can be summarized as following. First, During the sample analysis period, it is found that the higher the MPU index, the more negatively the housing sales price at the high volatility regime 2(expansion period). Second, it is found that the higher the MPU index, regardless of regimes, is to affect a negative effect on the housing sales price during the post-global financial crisis period. Third, It ia found that the MPU index reacted asymmetrically to housing prices or jeonse prices. Therefore, in order to stabilize the economy, it is necessary to simultaneously consider not only traditional real economy stabilization policies such as interest rate policies but also market psychological factors such as the MPU index as policy goal management indicators.

DOES INTERNATIONAL MONETARY POLICY INFLUENCE THE BANK RISK? EVIDENCE FROM INDIA

This study empirically examines the impact of international monetary policy on bank risk in the Indian context. Using annual data from 64 banks and employing panel OLS and GMM techniques, this study finds that: (1) a contractionary international monetary policy increases bank risk; (2) an appreciation of the domestic exchange rate induces bank riskiness; (3) the domestic monetary policy affects bank risk through the “search for yield” channel; and (4) the international monetary policy is relatively significant in explaining the bank riskiness in the post-global financial crisis period.

The nexus between financial inclusion and bank profitability: a dynamic panel approach

ABSTRACT This study examines the impact of financial inclusion on bank profitability in Sub-Saharan Africa (SSA) over the period 2000–2017. Using different sub-indicators of financial inclusion, the study employs the principal component analysis (PCA) to generate an index of financial inclusion. Applying the generalized method of moments technique which addresses the problem of endogeneity, the results show that financial inclusion negatively influences bank profitability in Sub-Saharan Africa, particularly in the post-global financial crisis period. Banking sector stability is noted to positively and significantly drive bank performance. Besides, while inflation has a significant positive impact on profitability, the effect of economic growth on profitability differs depending on the period of analysis. The study suggests that policy measures aimed at achieving a financially inclusive economy should encompass policies directed at improving banking sector profitability. That is, strategies to stimulate financial inclusion should move in tandem with policies to boost profitability.