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While previous literature has emphasized the causal relationship from liquidity to capital, the impact of interbank network characteristics on this relationship remains unclear. By applying the interbank network simulation, this paper aims to examine whether the causal relationship between capital and liquidity is influenced by bank positions in the interbank network.

Using the sample of 506 commercial banks established in 28 European countries from 2001 to 2013, the author adopts the generalized method of moments simultaneous equations approach to investigate whether interbank network characteristics influence the causal relationship between bank capital and liquidity.

Drawing on a sample of commercial banks from 28 European countries, this study suggests that the interconnectedness of banks within interbank loan and deposit networks shapes their decisions to establish higher or lower regulatory capital ratios in the face of increased illiquidity. These findings support the implementation of minimum liquidity ratios alongside capital ratios, as advocated by the Basel Committee on Banking Regulation and Supervision. In addition, the paper underscores the importance of regulatory authorities considering the network characteristics of banks in their oversight and decision-making processes.

This paper makes a valuable contribution to the current body of research by examining the influence of interbank network characteristics on the relationship between a bank’s capital and liquidity. The findings provide insights that add to the ongoing discourse on regulatory frameworks and emphasize the necessity of customized approaches that consider the varied interbank network positions of banks.

This study aims to explore the impact of systematic liquidity risk on the averaged cross-sectional equity return of the Indian equity market. It also examines the effects of illiquidity and decomposed illiquidity on the conditional volatility of the equity market.

The present study employs the Liquidity Adjusted Capital Asset Pricing Model (LCAPM) for pricing systematic liquidity risk using the Fama & MacBeth cross-sectional regression model in the Indian stock market from January 1, 2012, to March 31, 2021. Further, the study employed an exponential generalized autoregressive conditional heteroscedastic (1,1) model to observe the impact of decomposed illiquidity on the equity market’s conditional volatility. The study also uses the Ordinary Least Square (OLS) model to illuminate the return-volatility-liquidity relationship.

The study’s findings indicate that the commonality between individual security liquidity and aggregate liquidity is positive, and the covariance of individual security liquidity and the market return negatively affects the expected return. The study’s outcome specifies that illiquidity time series analysis exhibits the asymmetric effect of directional change in return on illiquidity. Further, the study indicates a significant impact of illiquidity and decomposed illiquidity on conditional volatility. This suggests an asymmetric effect of illiquidity shocks on conditional volatility in the Indian stock market.

This study is one of the few studies that used the World Uncertainty Index (WUI) to measure liquidity and market risks as specified in the LCAPM. Further, the findings of the reverse impact of illiquidity and decomposed higher and lower illiquidity on conditional volatility confirm the presence of price informativeness and its immediate effects on illiquidity in the Indian stock market. The study strengthens earlier studies and offers new insights into stock market liquidity to clarify the association between liquidity and stock return for effective policy and strategy formulation that can benefit investors.

The authors investigate how foreign investment in securities market informs about the future firm performance in emerging markets.

The authors define the independent variable abnormal foreign investment (AFI) as the residuals of the foreign ownership equation. The authors regress foreign ownership on its first lag and factors and define the residuals as the AFI. The AFI is the over- or under-investment reflecting foreign conscious (clear-purpose) investment, thus better indicating how foreign investment affects firm performance. The dependent variable is Tobin’s q (Q), which represents the firm performance. Then, the authors regress the Tobin’s q next quarters (Qt + k) on the AFI current quarter (AFIt). The authors use a two-step generalized method of moments (GMM) and check endogeneity with the D-GMM model for the regression.

The results show that the current AFI is positively correlated with the firm performance in each of the next four quarters (the following one year). This positive relationship is pronounced for large firms, firms with no large foreign investors, liquid firms and firms listed in the active market. The results suggest that foreign investment might choose well-productive firms already. Also, the current AFI is significantly positively correlated with stock returns in each of the next three quarters. These results suggest that the AFI is informative up to one-year period.

The results suggest that foreign investors (most of them are small) in the Vietnamese market might choose well-productive firms already. However, if the large investors have long-term investment in tangible, intangible, human capital and so on, and lead to a significant increase in firms’ performance is still the limitation of this paper.

The results of this paper may guide investors whose portfolios are composed of stocks with foreign investment.

This paper adds to the literature to enrich the conclusion of a positive relationship between foreign ownership and firm performance.

We explore the impact of equity liquidity on a firm’s dynamic leverage adjustments and the moderating impacts of leverage deviation and target instability on the link between equity liquidity and dynamic leverage in the UK market.

In applying the two-step system GMM, we estimate our model by exploring suitable instruments for the dynamic variable(s), i.e. lagged values of the dynamic term(s).

Our analyses document that a firm’s equity liquidity has a positive impact on the speed of adjustment (SOA) of its leverage ratio back to the target ratio in the UK market. We also demonstrate that the positive relationship between liquidity and SOA is more pronounced for firms whose current position is relatively close to their target leverage ratio and whose target ratio is relatively stable.

This study provides important implications for both firms’ managers and investors. Particularly, firms’ managers who wish to increase the leverage SOA to enhance firms’ value need to give great attention to their equity liquidity. Investors who want to evaluate firms’ performance could also consider their equity liquidity and leverage SOA.

We are the first to enrich the literature on leverage adjustments by identifying equity liquidity as a new determinant of SOA in a single developed country with many differences in the structure and development of capital markets, ownership concentration and institutional characteristics. We also provide new empirical evidence of the joint effect of equity liquidity, leverage deviation and target instability on leverage SOA.

Using cross-country data on the 1,000 largest global banks for 2019, the paper aims to examine the response of bank risk and returns to the pandemic.

The author employs weighted least squares (WLS) techniques for the purposes of analysis.

The findings suggest that banks with Islamic windows increased their riskiness in response to the pandemic, although there was not much impact on profitability. Additionally, the author categorizes banks based on certain major characteristics and find that these findings are manifest primarily for well-capitalized and less liquid banks.

Research as to the impact of the pandemic on banks' balance sheets has been an unaddressed area of research. By focusing on a large sample of banks across countries with both Islamic and conventional banking presence, the analysis sheds light on the balance sheet response of banks to the pandemic, an aspect that has not been addressed earlier.

This paper examines the hypothesis of local herding (i.e. own-area effects) by individual investors on a particular stock-month. Using a unique dataset on online and offline individual investors’ trading records in Korea, we analyze buying and selling transactions involving 10,000 accounts from February 1999 to December 2005. We find that both online and offline investors in the same area tend to exhibit stronger local herding compared to investors’ trades who are geographically remote. Interestingly, online investors not only present stronger own-area effects but also exhibit more pronounced other-area effects compared with offline investors. Furthermore, our analysis indicates that gender and religious affiliation are important in investment behavior, with male and non-religious investors displaying a greater stock market participation in contrast to investors who are female and Protestant.

National cultures significantly explain cross-country differences in the relation between asset growth and stock returns. Motivated by the notion that managers in individualistic and low uncertainty-avoiding cultures have a higher tendency to overinvest, this study aims to show that the negative relation between asset growth and stock returns is stronger in countries with such cultural features. Once the researchers control for cultural dimensions, proxies associated with the q-theory, limits-to-arbitrage, corporate governance, investor protection and accounting quality provide no incremental power for the relation between asset growth and stock returns across countries. Evidence of this study highlights the importance of the overinvestment hypothesis in explaining the asset growth anomaly around the world.

This study identified how investor sentiment on Twitter is associated with Brazilian stock market return and trading volume.

The study analyzes 314,864 tweets between January 1, 2017, to December 31, 2018, collected with the Tweepy library. The companies’ financial data were obtained from Refinitiv Eikon. Using the netnographic method, a Twitter Investor Sentiment Index (ISI) was constructed based on terms associated with the stocks. This Twitter sentiment was attributed through machine learning using the Google Cloud Natural Language API. The associations between Twitter sentiment and market performance were performed using quantile regressions and vector auto-regression (VAR) models, because the variables of interest are heterogeneous and non-normal, even as relationships can be dynamic.

In the contemporary period, the ISI is positively correlated with stock market returns, but negatively correlated with trading volume. The autoregressive analysis did not confirm the expectation of a dynamic relationship between sentiment and market variables. The quantile analysis showed that the ISI explains the stock market return, however, only at times of lower returns. It is possible to state that this effect is due to the informational content of the tweets (sentiment), and not to the volume of tweets.

The study presents unprecedented evidence for the Brazilian market that investor sentiment can be identified on Twitter, and that this sentiment can be useful for the formation of an investment strategy, especially in times of lower returns. These findings are original and relevant to market agents, such as investors, managers and regulators, as they can be used to obtain abnormal returns.

In 2022, US financial regulators proposed to mandate a single central clearing mechanism for treasury bonds and repo transactions to stabilize financial markets. The systemic risks inherent in repo markets were first highlighted by the global financial crisis and, as a response, global financial authorities such as the Financial Stability Board (FSB) and Bank for International Settlements (BIS) have advocated for the introduction of a central counterparty (CCP). This study examines the structural characteristics of Korean repo markets and proposes the introduction of CCPs as a way to mitigate systemic risk. To this end, the author analyzes the structural differences between US and European repo markets and estimates the potential consequences of introducing CCP clearing in local repo markets. In general, CCPs offer two benefits: they can reduce required capital through netting in multilateral transactions, and they can mitigate the effects of risk transfer by isolating counterparty risk during periods of turbulence. In Korea, the latter effect is expected to play a pivotal role in mitigating potential risks.

This study aims to investigate the link between audit quality and in-court debt restructuring. The aim is to understand whether the confirmation of debt restructuring plans is affected by audit quality, which, in the light of agency theory, reduces information asymmetries between outsiders (creditors and the court) and insiders (shareholders and managers) of the debtor company.

A logistic regression is performed to test whether higher audit quality is associated with an increased probability of successfully completing a debt restructuring proceeding (RP). Consistent with the literature, audit quality is assessed ex ante based on auditor size, which is used as a proxy for independence. The analysis considers private Italian companies.

Audit quality positively affects debt restructuring. Among financially distressed companies, those audited by an audit company are more likely to succeed in RPs than those audited by a single practitioner. There is no evidence of a Big N effect.

This study fills a gap in literature as, in contrast to other financial and governance characteristics, audit quality has never been studied before as a determinant of efficient restructuring. It contributes to the literature on auditing and governance by highlighting the importance of audit quality in complex situations such as RPs, and it expands on debt restructuring literature by considering the importance of the information exchanged during RPs.