Post-global Financial Crisis Period Research Articles

Impact of firm-level attributes on listed real estate company performance

PurposeThe purpose of this paper is to test the extent to which company-specific attributes including market capitalisation, capital structure and investment focus impact upon the performance of European listed real estate companies. Enhanced understanding of firm-level performance drivers is important for investors in order to diversify their investment portfolios and to mitigate company-specific risks at different points in the real estate cycle.Design/methodology/approachThe study centres on six key listed European real estate markets selected on the basis of market capitalisation, diversity, transparency and maturity. A series of statistical tests are undertaken using EPRA and Bloomberg data for the period of 2007–2017 using 113 listed property companies, all of whom were contemporaneous constituents of EPRA indices in this period. A series of customised performance indices were constructed to evaluate firm-level performance attributes.FindingsFirm-level attributes collectively account for more variation of risk-adjusted return than sector-level attributes over the investigation period. The impact of firm-specific attributes on performance varies significantly from country to country attributable to the contrasting cyclical property market trends in the pre– and post–Global Financial Crisis period. REITs outperformed non-REITs on a risk-adjusted basis attributed to the strong performance of “niche” market entrants allied with stronger regulatory structure. Finally, the findings showcase that sector specialist firms outperform diversified companies inferring that investors should seek to attain diversification through portfolio-based approaches rather than firm-level strategies.Practical implicationsThe results have implications for real estate companies aiming to raise capital internally for growth as higher return on equity in general signals reduced cost of capital. Secondly, the findings should be of practical use to multinationals specialising in international real estate trading in designing their business plans in general and formulating cross-country investment strategies in particular. Last but not least, a more refined conceptualisation of corporate-level performance drivers should complement existing professional practices in relation to business/company appraisal.Originality/valueThe research integrates EPRA and Bloomberg data sets to create a series of bespoke index constructs to measure the impact of firm-specific attributes on European listed real estate companies. Additionally, the authors construct a Herfindahl Index (H.I.) to further the debate on the impacts of diversification within the listed real estate sector. This serves to further heighten investor understanding of investment allocation and portfolio optimisation strategies for the listed real estate sector given the increasingly diverse range of investment opportunities within emerging sub-markets.

Cross-border capital flows and return dynamics in emerging stock markets: Relative roles of equity and debt flows

This paper examines the effect of cross-border capital flows on financial markets by focusing on the composition of flows, viz. equity and debt flows, and its relative effect on emerging stock market returns and volatility. Using a panel GARCH approach on nine emerging market economies, we find that both equity and debt flows possess incremental information over stock market returns and volatility that is not captured by aggregate capital market risk factors. While the explanatory power of debt flows is relatively stronger and more robust, even after controlling for world market return, global risk, bank credit flows and country-level liquidity, we find that equity flows assume significant explanatory power, particularly during the post-global financial crisis period. The findings overall suggest that emerging stock markets have become particularly sensitive to cross-border capital flows following the great credit crunch, with significant effects on idiosyncratic risks at the country level, while accounting for the composition of portfolio flows can add further explanatory power to stock market models.

The determinants of bank loan recovery rates in good times and bad – New evidence

We find that factors explaining bank loan recovery rates differ depending on the state of an underlying credit cycle. Our modelling approach incorporates a two-state Markov switching mechanism to capture underlying economic conditions. This latent credit cycle variable helps to explain differences in observed recovery rates over time. Using US bank default loan data from Moody’s Ultimate Recovery Database and covering the pre-and post-global financial crisis (GFC) period, the paper develops and implements a dynamic model for bank loan recovery rates. We accommodate the distinctive empirical features of the recovery rate data, while incorporating a large number of possible determinants. We find that certain loan-specific and other variables hold different explanatory power with respect to recovery rates in ‘good’ versus ‘bad’ times in the credit cycle, i.e. depending on underlying credit market conditions. Our findings demonstrate the importance of accounting for counter-cyclical expected recovery rates when determining capital retention levels.

Zero Lower Bound and negative interest rates: Choices for monetary policy in the UK

There have been relatively few analyses of the policy context and consequences of a Zero Lower Bound (ZLB) for nominal interest rates. This paper sets out monetary policy alternatives, including negative interest rates, a revision of the inflation target, and rendering unconventional policy instruments such as QE conventional (permanent). Following extensive discussion of policy options, we set out a model that explores the impacts of the real policy rate on economic growth, employment and inflation, with particular attention to the British economy. We use a Time-Varying Structural Vector Auto-regressive (TVSVAR) Model where the sources of time variation are both the coefficients and variance–covariance matrix of the innovations. It was found that real rates have significant implications for real growth, the labour market and price stability even when monetary policy was constrained at the ZLB in nominal terms. The study additionally applies a discrete break in the data to focus on the Post-Global Financial Crisis and ZLB period. This indicates that the effectiveness of real rates did not diminish and this has important implications in terms of a policy approach which seeks to exploit real negative rates.

Corporate Social Responsibility and Stock Prices After the Financial Crisis: The Role of Primary Strategic CSR Activities

We analyze the relationship between corporate social responsibility and the stock market performance in the post-global financial crisis period. A new measure of social responsibility by Thomson Reuters, called the ESG Combined Score, is used. As a novel feature of our analysis, socially responsible engagement is divided into the strategic activities closely related to the examined companies' core business and the remaining secondary activities. The results of the fixed effects regression show a positive and statistically, as well as economically, significant impact of the strategic activities on the corporate stock market performance of companies. This impact is up to 103% higher compared to the secondary activities. The empirical results suggest that if companies aim to increase their share prices via the corporate social responsibility channel, they should strategically select their socially responsible initiatives.

Fundamental Factors of the Egyptian Stock Market

This paper proposes twelve fundamental factors model in Egypt as price risk factors, which were formed according to [1]. Then, the paper examines fundamental factors after excluding medium-size stocks which were divided into three groups: top 30%, medium 40%, and bottom 30% and that most of the stocks lie in the medium which might lead to bias in measuring the effect of fundamental factors as a price of risk factors. The study utilized a sample of 48 companies out of 100 stocks listed on EGX100 index which were the active stocks among the study period. The study used monthly data from January 2005 until December 2016. And, data have been categorized within this research into five, whole period from January 2005 to December 2016, normal period from January 2005 to December 2007, post-global financial crisis period from January 2008 to December 2010, post-Egyptian revolution from January 2011 to December 2013 and the economic recovery period from January 2014 to December 2016. The study then Utilized Gibbons Ross Shaken (GRS) to determine which factor model can estimate the risk premium better than others for each proposed period. This methodology was repeated two times. The first which follow previous fundamental factors: three, four, five, six, eight, and twelve factors models. Second, repeating the same methodology but broking down the size into three groups excluding medium one to become (3×2) size portfolios. The results shows that the twelve-factor model of 3x2 proposed portfolios is the best model for estimating risk premium in the recovery period, six-factor model 3x2 portfolios is the most reliable for unstable periods and twelve-factor model of 2x3 portfolios for normal growing periods. Accordingly, we recommend using twelve-factor model of 2x3 portfolios for growing periods which addressing Egyptian current period.

Shifts in Global Credit and Corporate Access to Finance

Employing a dataset of 1,160 Indian firms, we study the impact of global financing conditions on firms’ borrowings abroad across different phases of global credit. While the abundant credit in the post global financial crisis period allowed firms to take advantage of relatively cheap financing abroad, we show that firms’ access to external finance has declined since 2013. We find that since 2013, lenders are differentiating across borrowers and it is specifically the less risky and more profitable firms that are increasing their foreign borrowings even at the times of higher global risk. We do not find evidence of regional and domestic credit offsetting this global effect. Furthermore, we find that the reduced access to external finance in the post-2013 period is associated with a decline in firms’ real investment activities, highlighting the real effects of global credit dynamics.

Bank Capital and Monetary Policy Transmission in India

This paper examines the role of bank capital in monetary policy transmission in India during the post-global financial crisis period. Empirical results show that banks with higher capital to risk-weighted assets ratio (CRAR) raise funds at a lower cost. Additionally, banks with higher CRAR transmit monetary policy impulses smoothly, while stressed assets in the banking sector hinder transmission. Recapitalization to raise CRAR can improve transmission; however, CRAR above a certain threshold level may not help as the sensitivity of loan growth to monetary policy rate reduces for banks with CRAR above the threshold. Therefore, it can be concluded that monetary policy can influence credit supply of banks depending on their capital position.

Decisive Scrutiny of Regulatory Framework for Derivatives Products in Indian Stock Market with Special Reference to Single Stock Futures

The ability of the derivatives market to function as a risk management tool for risk avoiders has resulted in the popularity of the derivative products and, therefore, volatile underlying assets have recorded high trading volumes in the derivative market. A cautious approach was employed by market regulators and the government in the introduction of derivative products, and concerns about extreme market movements and manipulations are addressed as and when such events are detected. Derivatives markets are expected to bring in increased investments to the economic sector in the long run by boosting the confidence of market participants and catering to their risk management needs. Because derivatives markets are expected to provide investors higher overall returns, they are expected to foster the saving habit of market participants and bring about economic growth. Handling innovative products in the market calls for a very secure, dynamic, and sustainable framework of regulatory authorities. When the history of Indian derivative markets is considered, it is seen that The regulatory framework for the derivative trading is as effective as, during the post-global financial crisis period, the recovery of the Indian markets was commendable. The present study undertakes an analysis of the regulatory framework for the derivatives market in the Indian scenario with special reference to single stock futures.

Tax Buoyancy in the Caribbean: Evidence from Heterogenous Panel Cointegration Models

This paper provides long and short run tax buoyancy estimates for a group of 12 Caribbean countries over the period 1991-2017. By using various panel regressions estimated by the Mean Group and Pooled Mean Group estimators, this paper finds that the long and short run tax buoyancy estimates are statistically greater than one. However, the results vary by tax categories: with respect to indirect taxes—which accounts for almost 65 percent of total tax revenues—the buoyancy of the long run coefficient significantly less than one (0.35), while for direct taxes it is significantly higher than one (1.33). It was also found that long run tax buoyancy was lower in the post global financial crisis period. With respect to short-run buoyancy, corporate taxes and trade taxes are the most buoyant in the short-run while property taxes were found to be statistically insignificant. For taxes on goods on services, the single most important tax for most countries, both long and short run buoyancy is not significantly different from one.

Is bitcoin a channel of capital inflow? Evidence from carry trade activity

We empirically identify carry trade activities under the disguise of bitcoin transactions on USD and CNY bitcoin exchanges during the post global financial crisis period. Relying on variations of bitcoin exchange pairs and two policy shocks, we find the evidence of inflow capital control evasion. We show that the relative CNY to USD bitcoin price, indicating capital inflow volume, of those with high excessive currency conversion profit respond significantly more negatively to carry trade returns. Moreover, this relationship becomes significantly weaker when China tightens its regulations on bitcoin transactions.

Has the Global Financial Crisis Changed the Market Response to Credit Ratings? Evidence from an Emerging Market

This article analyses the differential market response to credit rating revisions in the pre- and post-global financial crisis (GFC) period using data from India. By reviewing the stock price reaction to the announcement of long-term rating changes during the period 1996–2015, the study finds evidence that the stock price reacted less to rating announcements after the GFC of 2008. However, the difference in the cumulative abnormal returns before the GFC and after the GFC is not statistically significant. JEL codes: G240, G010, G140

A conceptual framework for inclusive economics

Background: In view of growing concerns about global inequality and economic exclusion within and between countries, the theme of ‘inclusive economics’ or ‘economic inclusivity’ is gaining significance. Aim: In discovering a more in-depth understanding of inclusive economics, the article develops a conceptual framework to better understand both the interpretation and application of inclusive economics. Setting: As an ideal setting, the post-global financial crisis period provides fertile ground to explore alternative economic theories and systems such as inclusive economics. Methods: A variety of terms and theories are associated with inclusive economics, hence a conceptual and theoretical analysis, in a descriptive context, is used to clarify the theoretical demarcation of this concept. Results: Since the concept does pose a challenge to conventional economic frameworks, a key result is that it may become a valuable addition to the range of economic thinking and proposals in solving much-needed 21st century economic challenges. Conclusion: The article contributes towards developing a new paradigm for genuine economic progress – in theory and practice.

The development and initial performance analysis of REITs in Ireland

PurposeThe inception of REITs in Ireland in 2013 presented an additional property investment opportunity to Ireland’s commercial property investment landscape. Importantly, the Irish REIT market is an institutional apparatus with an objective to rejuvenate Ireland’s commercial property market. The purpose of this paper is to provide an empirical validation of the performance of Irish REITs over the period March 2015 to February 2019 across several investment measures such as risk-adjusted returns and diversification benefits.Design/methodology/approachUsing monthly total returns in local currency, the risk-adjusted performance and portfolio diversification attributes of Irish REITs are assessed. The mean-variance framework is utilised to assess the potential added-value benefits of Irish REITs in a mixed-asset portfolio.FindingsIrish REITs delivered the strongest average annual return performance, lower relative volatility vs the stock market and competitive overall risk-adjusted performance. The results affirm the characteristic of Irish REITs as a total return-focussed income-driven property investment asset class. The optimal asset allocation analysis shows that Irish REITs are an important ingredient in a mixed-asset investment framework, as their allocation could be scaled effectively across the portfolio risk-return spectrum.Practical implicationsIrish REITs are an emerging investment opportunity for investors seeking exposure in the strongly performing property market in Ireland in the post-Global Financial Crisis period. They are also regarded as an effective alternative conduit to private investment routes (i.e. direct property and non-listed property funds), with the added advantage of being more liquid and versatile than their private property investment counterparts. Importantly, Irish REITs fulfilled the purpose for which they were originally designed. The promising initial performance observed in this paper gives a useful context to what the future might hold for Irish REITs, given the strong interest for commercial property assets in Ireland from both local and cross-border property investors.Originality/valueThis paper is the first empirical research aimed at providing an initial empirical performance validation of Irish REITs as an effective route to commercial property exposure in Ireland. This research enables empirically validated, more informed and practical property investment decision making regarding the strategic role of Irish REITs in a portfolio.

Determinants of total factor productivity in Indian states

PurposeThis paper aims to compute total factor productivity (TFP) growth for India as well as for its 19 major states and to explore the determinants of TFP at the state level by considering the spillover effects.Design/methodology/approachTFP growth has been obtained using growth accounting equation. Further, the TFP growth estimates were used to derive TFP levels using the translog index procedure. Given the policy focus on building infrastructure and expanding financial access, we have estimated the impact of irrigation, electricity, road, health, education and financial depth on TFP using the Spatial Durbin Model to account for spillover effects.FindingsComputing TFP growth for two sub periods, namely, 2001-2008 and 2009-2015, the study finds a deterioration in TFP growth for India as well as for 10 of the 19 states under study in the post global financial crisis period. The author find that TFP is positively impacted by irrigation, health and road infrastructure. While financial depth and education were statistically insignificant, installed capacity of electricity had a negative impact on state level TFP.Research limitations/implications'The author provides rationale for the empirical findings considering the country context. The findings of this study act as pointers for shaping higher growth on a sustained basis in India. The study helps to assess the productivity growth in the new states, namely, Jharkhand, Chhattisgarh and Uttarakhand, that were carved out in 2000 vis a vis their parent states. This assessment is useful especially for the states of Jharkhand and Chhattisgarh which were created to address economic backwardness in certain pockets of the parent states.Originality/valueFirst, it provides TFPG estimates for India as well as 19 major states during the 2000-2015 period. Second, this study helps to understand how TFPG for India as well as each of the 19 states have behaved in the post global financial crisis period. Third, the study helps to assess the productivity growth in the three newly created states in 2000 vis a vis their parent states. Fourth, this is the first attempt which considers the spatial interdependence among the states to estimate the impact of financial and infrastructural development on productivity in the Indian states.

Is There a Relationship between Productivity and Relative Prices in South Africa?

Abstract The Balassa–Samuelson hypothesis proposes that there should be a direct relationship between a country’s real exchange rate and its productivity performance. Given South Africa’s (SA’s) poor relative productivity performance, a weak and depreciating real exchange rate would be expected under this hypothesis. However, the real effective exchange rate has been relatively stable since the early 2000s. We construct tradable and nontradable price and productivity measures and show that tradable sectors have tended to experience more rapid productivity growth than nontradable sectors in both SA and the United States. However, we show that there is not a strong relationship between sectoral productivity and prices in SA, or with the real exchange rate with the United States. Better explanations for SA’s deteriorating international competitiveness (shown by higher relative prices) are a relatively high domestic inflation rate caused by nontradable sectors, as well as disproportionately large increases in government wages over the post–global financial crisis period.

Can Consumption Growth in China Keep Up as Investment Slows?

China’s exceptionally large share of investment in GDP has been widely noted. Rebalancing away from investment to consumption has been on China’s agenda to realize more sustainable growth. As investment growth slows, the question is whether consumption could replace investment as a growth engine. This paper empirically explores the drivers of Chinese household consumption and specifically tests whether investment has affected household consumption beyond the standard income channel. Our empirical results using both national- and provincial-level data suggest that investment has had a significant impact on household consumption beyond the household income channel. The effects are particularly strong in the post-Global Financial Crisis period, suggesting that the Chinese government’s stimulus measures, which aimed mostly at investment spending, have significantly affected households’ decision to consume both through households’ current and expected future income channel.

A VaR-based Downside Risk Analysis of Indian Equity Mutual Funds in the Pre- and Post-global Financial Crisis Periods

This article analyses downside risk of Indian equity mutual funds from 1999 to 2014 using a value at risk (VaR)-based approach. We use weekly return data of a sample of 349 equity mutual funds during the said period to estimate their weekly VaRs on a rolling basis using some parametric and non-parametric models. Moving average (MA), exponentially weighted MA and GARCH (1, 1) are the parametric models and historical simulation (HS) is the non-parametric model. We also carry out backtesting of the models using three popular approaches—two under the unconditional coverage approach, namely Jorion’s ‘Failure Rate’ approach and Kupiec’s proportion of ‘failures’ (POF) test, and one under the conditional coverage approach, namely the Christoffersen’s Independence test—to test the robustness of the VaR models. Our results show that Indian equity mutual funds exhibit considerable downside risk during the chosen period, in terms of the magnitude of the projected VaRs. Moreover, significant proportions of the funds ‘fail’ the predicted VaRs, particularly during times of crisis for some of the models, raising questions about their robustness in an investment setting in India. On the whole, both from failure proportion as well as backtesting perspective, the GARCH (1,1) seems to be the most robust of the models. JEL codes: G32, G15, G23

Corporate debt, firm size and financial fragility in emerging markets

The post-Global Financial Crisis period shows a surge in corporate leverage in emerging markets and a number of countries with deteriorated corporate financial fragility indicators (Altman's Z-score). Firm size plays a critical role in the relationship between leverage, firm fragility and exchange rate movements in emerging markets. While the relationship between firm-leverage and distress scores varies over time, the relationship between firm size and corporate vulnerability is relatively time-invariant. All else equal, large firms in emerging markets are more financially vulnerable and also systemically important. Consistent with the granular origins of aggregate fluctuations in Gabaix (2011), idiosyncratic shocks to the sales growth of large firms are positively and significantly correlated with GDP growth in our emerging markets sample. Relatedly, the negative impact of exchange rate shocks has a more acute impact on the sales growth of the more highly levered large firms.

Monetary Policy and the Stock Price - Exchange Rate Nexus: New Insights from Influential African Economies

The study examined the role of monetary policy in the stock price - exchange rate nexus in the three major financial markets in Africa between 2005 and 2017. Essentially, the study attempted to validate the trade balance approach (TBA) for the African stock markets and conducted analyses in the periods before and after the global financial crisis (GFC). The study focused on Nigeria, South Africa and Egypt and utilized data on nominal exchange rate, stock price, nominal interest rate and consumer price index sourced from the International Financial Statistics of the International Monetary Fund. The trend analysis revealed that stock price and exchange rate in South Africa moved in the same direction while the variables moved in different directions in Nigeria and Egypt. With the aid of the panel autoregressive distributed lag technique (PARDL), the study showed negative and significant relationship between exchange rate and stock price, validating the TBA for the full sample and the post GFC periods while the theory cannot be substantiated for the pre-GFC period.