Editorial

Citation

Buchanan, B.G. (2015), "Editorial", Journal of Risk Finance, Vol. 16 No. 3. https://doi.org/10.1108/JRF-05-2015-0047

Editorial

Article Type: Editorial From: The Journal of Risk Finance, Volume 16, Issue 3

Modern societies are increasingly formed by social, economic and legal relations that dissolve the traditional boundaries of nation states. Transnational firms and other cross-border organizations and networks develop new modes of cooperation, thereby setting new standards of governance. At the same time, markets – in particular financial markets – have more and more outgrown systems of national regulation, and time and again a crisis illustrates the need to improve international policy coordination, and to develop more elaborate ways of coping with the risks that arise.

This special issue of The Journal of Risk Finance contains a selection of papers presented at the 2014 workshop on “Coping with Risk in Transnational Financial Markets” hosted by ZenTra, the Center for Transnational Studies, in Oldenburg, Germany. Established in 2011, ZenTra is an interdisciplinary and collaborative initiative joining researchers from various fields at the Universities of Bremen and Oldenburg. This two-day meeting in July 2014 was initiated by a group of researchers active at the intersection of risk management, transnationalization and financial intermediation, and brought together scholars from France, Germany, Ireland, Italy, The Netherlands, New Zealand and the UK.

All seven papers selected successfully underwent the special issue’s double-blind review process. The selected contributions address the workshop’s main topic from various angles, using different methodological approaches. While some of the papers adopt either a conceptual or a theoretical view to study the role and the regulation of transnational financial intermediaries, such as banks, credit rating agencies or clearing organizations, others use an empirical strategy to scrutinize the efficiency of market reactions to these intermediaries’ actions.

In “Location of banks and their credit ratings”, Jakob de Haan and Eric van Loon examine whether credit ratings of banks located inside or outside the Euro Area are different. They find that banks located in Euro Area member countries on average receive a higher credit rating from Fitch than banks located outside the Euro Area, suggesting that small European countries with a large banking sector will be better off if they are a member of the monetary union. Christian Fieberg, Finn-Marten Körner, Jörg Prokop and Armin Varmaz study the information content of about 3,200 global bank rating changes before and after the Lehman collapse in September 2008 from an equity investor’s perspective in “Big is beautiful: The information content of bank rating changes”. Based on an event study approach, they find that rating upgrades are not associated with significant abnormal bank stock returns and that downgrades have a significantly negative effect for small banks only. While credit rating agencies are quite explicit about risk assessments concerning public debt that is denominated in foreign currency, the same cannot be said about their treatment of sovereign debt issued in the currency of a monetary union. According to Finn-Marten Körner and Hans-Michael Trautwein in “Rating Sovereign Debt in a Monetary Union – Original Sin by Transnational Governance”, they find strong evidence that the Economic and Monetary Union countries received a rating bonus on Euro-denominated debt before the European debt crisis and a large penalty after 2010.

In “Financial regulation, collective cognition, and nation state crisis management: A multiple case study of bank failures in Germany, Ireland, and the UK”, Sheila Donohoe, William Forbes and Jörg Prokop evaluate the communality and differences in experiences and policy responses in the run up to the 2007-2009 credit crisis and its critical early stages. Dominique Torre, Nathalie Oriol and Alexandra Rufini indicate the importance of the trade-off between diversification and externalities in “Heterogeneous Investors and Trading Platforms Competition”. Giuliana Passamani, Matteo Tomaselli and Roberto Tamborini present the results of a dynamic principal components factor analysis in “Sustainability vs credibility of fiscal consolidation. A principal components factor analysis for the Euro Zone”. They find evidence that the announcement of the European Central Bank’s Outright Monetary Transactions program has improved the sustainability assessment of sovereign debts. Finally, under the German Corporate Governance Code (GCGC), German-listed companies are required by law to annually disclose their compliance with the recommendations. In “Does Compliance with the German Corporate Governance Code Pay Off? – An Investigation of the Implied Cost of Capital”, Thomas Kaspereit, Kerstin Lopatta and Jochen Zimmermann empirically investigate the relationship between the level of compliance with the GCGC’s recommendations and the implied cost of equity capital. Their results demonstrate that a higher level of GCGC compliance is associated with lower implied cost of capital.

Overall, the papers contained in this volume provide highly timely and topical discussions and results at both the macro and micro level concerning selected aspects of risk management in today’s financial markets. The Editor-in-Chief, Bonnie Buchanan, and the organizers of the ZenTra workshop would like to thank all authors for their stimulating contributions, and all of the anonymous referees for providing both high-quality and timely reviews, considerably helping in creating a high-quality volume.

Bonnie G. Buchanan