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1 – 10 of over 3000This paper investigates the influence of the ongoing crisis of Russia's incursion on Ukraine on the risk dynamics of energy futures contracts with high-frequency data on four…
Abstract
Purpose
This paper investigates the influence of the ongoing crisis of Russia's incursion on Ukraine on the risk dynamics of energy futures contracts with high-frequency data on four different futures contracts using risk metrics of value at risk (VaR) and conditional value at risk (CVaR) for the USA market.
Design/methodology/approach
The author used different generalised autoregressive conditional heteroscedasticity - Extreme Value Theory (GARCH)-EVT models and compared the performance of each of the competing models. Backtesting evidence shows that VaR and CVaR combined with GARCH-EVT better estimate risk.
Findings
The study results show that combined risk metrics are efficient and adaptive to estimating the risk dynamics and backtesting of the models, revealing that the autoregressive moving average (ARMA) (1,1)-asymmetric power autoregressive conditional heteroscedasticity (APARCH) model performs relatively better than other models.
Practical implications
The paper has practical implications for different market participants. From the risk manager's and day traders' angles, the market participants can estimate the risk exposure in the energy futures contract and take positions accordingly. The results are important for oil-importing countries due to the developing supply crisis and price escalation, which can brew inflation in the economy.
Originality/value
To the best of the author's knowledge, the paper is the first to throw light on the risk angle of energy futures contracts during the ongoing crisis of the Russia–Ukraine war.
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Carlos J.O. Trejo-Pech, Karen L. DeLong and Robert Johansson
The United States (US) sugar program protects domestic sugar farmers from unrestricted imports of heavily-subsidized global sugar. Sugar-using firms (SUFs) criticize that program…
Abstract
Purpose
The United States (US) sugar program protects domestic sugar farmers from unrestricted imports of heavily-subsidized global sugar. Sugar-using firms (SUFs) criticize that program for causing US sugar prices to be higher than world sugar prices. This study examines the financial performance of publicly traded SUFs to determine if they are performing at an economic disadvantage in terms of accounting profitability, risk and economic profitability compared to other industries.
Design/methodology/approach
Firm-level financial accounting and market data from 2010 to 2019 were utilized to construct financial metrics for publicly traded SUFs, agribusinesses and general US firms. These financial metrics were analyzed to determine how SUFs compare to their agribusiness peer group and general US companies. The comprehensive financial analysis in this study covers: (1) accounting profit rates, (2) drivers of profitability, (3) economic profit rates, (4) trend analysis and (5) peer comparisons. Quantile regression analysis and Wilcoxon–Mann–Whitney statistics are employed for statistical comparisons.
Findings
Regarding various profitability and risk measures, SUFs outperform their agribusiness peers and the general benchmark of all US firms in terms of accounting profit rates, risk levels and economic profit rates. Furthermore, compared to other US industries using the 17 French and Fama classifications, SUFs have the highest return on investment and economic profit rate―measured by the Economic Value Added® margin―and the second-lowest opportunity cost of capital, measured by the weighted average cost of capital.
Originality/value
This study finds nothing to suggest that the US sugar program hinders the financial success of SUFs, contrary to recent claims by sugar-using firms. Notably in this analysis is the evaluation of economic profit rates and a series of robustness techniques.
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Seung Uk Choi, Hyung Jong Na and Kun Chang Lee
The purpose of this study is to examine the relationship between explanatory language, audit fees and audit hours to demonstrate that auditors use explanatory language in audit…
Abstract
Purpose
The purpose of this study is to examine the relationship between explanatory language, audit fees and audit hours to demonstrate that auditors use explanatory language in audit reports to explain perceived audit risk.
Design/methodology/approach
The authors construct the sentiment value, a novel audit risk proxy derived from audit reports, using big data analysis. The relationship between sentiment value and explanatory language is then investigated. The authors present the validity of their new metric by examining the relationship between sentiment value and accounting quality, taking audit fees and hours into account.
Findings
The authors first find that reporting explanatory language is positively related to audit fees. More importantly, the authors provide an evidence that explanatory language in audit reports is indicative of increased audit risk as it is negatively correlated with sentiment value. As a positive (negative) sentimental value means that the audit risk is low (high), the results indicate that auditors describe explanatory language in a negative manner to convey the inherent audit risk and receive higher audit fees from the risky clients. Furthermore, the relationship is strengthened when the explanatory language is more severe, such as reporting the multiple numbers of explanatory language or going-concern opinion. Finally, the sentiment value is correlated with accounting quality, as measured by the absolute value of discretionary accruals.
Originality/value
Contrary to previous research, the authors’ findings suggest that auditors disclose audit risks of client firms by including explanatory language in audit reports. In addition, the authors demonstrate that their new metric effectively identifies the audit risk outlined qualitatively in audit report. To the best of the authors’ knowledge, this is the first study that establishes a connection between sentiment analysis and audit-related textual data.
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Laurens Swinkels and Thijs Markwat
To better understand the impact of choosing a carbon data provider for the estimated portfolio emissions across four asset classes. This is important, as prior literature has…
Abstract
Purpose
To better understand the impact of choosing a carbon data provider for the estimated portfolio emissions across four asset classes. This is important, as prior literature has suggested that Environmental, Social and Governance scores across providers have low correlation.
Design/methodology/approach
The authors compare carbon data from four data providers for developed and emerging equity markets and investment grade and high-yield corporate bond markets.
Findings
Data on scope 1 and scope 2 is similar across the four data providers, but for scope 3 differences can be substantial. Carbon emissions data has become more consistent across providers over time.
Research limitations/implications
The authors examine the impact of different carbon data providers at the asset class level. Portfolios that invest only in a subset of the asset class may be affected differently. Because “true” carbon emissions are not known, the authors cannot investigate which provider has the most accurate carbon data.
Practical implications
The impact of choosing a carbon data provider is limited for scope 1 and scope 2 data for equity markets. Differences are larger for corporate bonds and scope 3 emissions.
Originality/value
The authors compare carbon accounting metrics on scopes 1, 2 and 3 of corporate greenhouse gas emissions carbon data from multiple providers for developed and emerging equity and investment grade and high yield investment portfolios. Moreover, the authors show the impact of filling missing data points, which is especially relevant for corporate bond markets, where data coverage tends to be lower.
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Arlindo Menezes da Costa Neto, Atelmo Ferreira de Oliveira, Aline Moura Costa da Silva and Alexandro Barbosa
The objective of the present study is to examine the value relevance of accounting information presented by Brazilian banks.
Abstract
Purpose
The objective of the present study is to examine the value relevance of accounting information presented by Brazilian banks.
Design/methodology/approach
The studied sample derived from Brazil’s Stock Exchange, B3, under the banking segment, resulting in a group of 24 publicly listed companies, whose data ranged from 2017 to 2019. The study was conducted using the disclosure index, made with the intent of evaluating the disclosure adherence of a company to the reporting standard. In this case, Comitê de Pronunciamentos Contábeis (CPC) 40, financial instruments: recognition, evaluation and disclosure, Instrumentos Financeiros: Evidenciação, Brazil’s interpretation of the International Financial Reporting Standards (IFRS) 7.
Findings
The results show that for the sample and period, the disclosure index cannot be used as an explanatory variable for the market evaluation of financial institutions.
Originality/value
While other studies have presented a similar approach to the value-relevance theme, the present work is original as it develops the methodology on financial institutions, and even more so on the financial institutions of a developing country.
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This study aims to investigate the relationship between boardroom gender diversity (BoGD) and risk-taking by property-liability (P-L) stock insurers from an analytical framework…
Abstract
Purpose
This study aims to investigate the relationship between boardroom gender diversity (BoGD) and risk-taking by property-liability (P-L) stock insurers from an analytical framework that control for organizational form and ownership structure. It relies on the behavioral agency model, the resource dependency theory and the concept of socioemotional wealth (SEW).
Design/methodology/approach
This study builds on an unbalanced panel of 2,285 firm-year observations from 232 European and US P-L stock insurers covering the period 2010–2019 and measure risk-taking by using four proxies: total risk (TR), upside risk (UpR), downside risk (DwR) and default risk (DR). Reverse causality and endogeneity concerns are treated by applying different approaches.
Findings
Findings suggest that BoGD mitigates the TR, DwR and DR but does not interfere with the UpR, which conceptualizes firm expectations to enhance patrimony and safeguard SEW for heirs, especially in family-owned insurers. The findings hold in various robustness checks including endogeneity and alternative specifications of BoGD and risk-taking.
Practical implications
This study contributes to practice by contrasting the role of female directors’ bevahior when assuming risk, which seems significantly different depending on the risk-taking specification and the organizational form. The author advises policyholders and policymakers to look at closely on BoGD and ownership structure as they affect insurance company risk-taking.
Originality/value
This study takes a more direct approach to highlight the BoGD’s effect on corporate risk-taking by focusing on the insurance sector which is characterized by risk and uncertainty bearing. To the best of the author’s knowledge, this is the first study to consider the full range of the stock organizational forms and the degree of family control in displaying this effect in both widely traded and closely traded insurers and to assess risk-taking from both market-based and accounting-based aspects.
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This study aims to explore how earnings management techniques are affected by corporate financial debt risk (FDR), internal control (IC) effectiveness and CEO education.
Abstract
Purpose
This study aims to explore how earnings management techniques are affected by corporate financial debt risk (FDR), internal control (IC) effectiveness and CEO education.
Design/methodology/approach
The study uses a sample from listed firms in China from 2010 to 2017, comprising different industries, including agriculture, forestry, livestock farming and fishing; mining; manufacturing; electric power, gas and water production and supply; construction; transport and storage; information technology; the real estate industry; social services; and communication and cultural. The regression analysis is used to test the hypotheses. The two-stage least squares technique is used to check for endogeneity issues.
Findings
The study finds that firms are less likely to manage real earnings when they have more robust IC and FDR. Likewise, companies with weak ICs are more likely to manipulate real earnings. Besides, the study finds an influence of CEO education on the relationship between IC, FDR and real earnings management (REM). These results can be applied to the sectors in the sample covered by the research, and the authors do not overlook the energy industry sector for the importance of its role in the economy.
Research limitations/implications
There are some limitations for the researcher when performing any research, and this study is no exception. Researchers are urged to take these circumstances into consideration when generalizing or comparing the results because the methods used to calculate the measurement variables in each study may differ somewhat from those used in other research. In addition, expanding the current research design to incorporate additional nations may be an area of interest for future research and could aid in evaluating the effects of nation-specific elements (such as inflation, culture, legal systems and political considerations) on the usefulness of IC and decreasing FDR. Second, the current study focuses on the impact of IC and FDR on REM; this paper does not dissect the “black box” of IC and consider how each element affects earnings management. Future research may need to focus specifically on how effective IC would affect earnings management and precisely what IC mechanisms would discourage the management of earnings.
Practical implications
Helping companies listed in China to make decisions and improve investors’ vision of the results of real companies’ businesses, as well as helping management to avoid falling into debt risk and the consequent effects and manipulation of earnings.
Originality/value
By highlighting the significance of IC and debt risk in enhancing information quality in China, the results contribute to the body of work examining the relationship between IC, FDR and REM. In addition, this study uses a CEO’s education to moderate this link.
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Nemer Badwan, Besan Saleh and Montaser Hamdan
This paper aims to investigate the determinants that contribute to the financial stability and banking sector of Palestinian banks listed on the Palestine Stock Exchange (PEX) by…
Abstract
Purpose
This paper aims to investigate the determinants that contribute to the financial stability and banking sector of Palestinian banks listed on the Palestine Stock Exchange (PEX) by using yearly data for the years 2012–2022.
Design/methodology/approach
Pooled ordinary least squares (OLS) and two-stage least squares (2SLS) were used to identify the variables and factors affecting the financial stability and banking sector of Palestinian banks. The study’s data were collected from the banks listed on PEX and from the yearly reports posted on the Palestine Monetary Authority’s (PMA) webpage over the years from 2012–2022. According to this research’s analysis, SMEs loans and capital sufficiency have a statistically significant positive impact on the stability of Palestinian banks. Unobserved heterogeneity, simultaneity and dynamic endogeneity are taken into account when using the 2SLS regression approach to adjust for the study endogeneity factor.
Findings
The study’s findings show that some factors and determinants might have both good and negative effects on financial stability and banking sector. Loans to small and medium-sized businesses (SMEs) and enough capital are two characteristics that statistically have a major favourable impact on the stability of Palestinian banks since they help the banks withstand deficits. A further potential discovery relates to the favourable effects of financial inclusion (FI) and digital financial services (DFS) on the stability of banks.
Research limitations/implications
This research has faced some limitations, such as the lack of a defined index from the regulatory organizations, this research is based on information from bank annual accounts. It has mostly relied on self-developed or World Bank indexes. Furthermore, the research solely used information from the supply side (banks); demand-side data were not taken into consideration.
Practical implications
This paper has managerial implications for stability of banking sector. The Palestine Monetary Authority, as the central bank, must increase the percentage of bank loans directed to small and medium-sized companies and oblige bank management to adhere to adequate capital standards, which contributes to strengthening the Palestinian banking sector and increasing its profits. The study findings advise banks that are enjoying financial stability to speed up the pace of FI and DFSs because most of these reliable banks have relatively low FI ratios. PMA is responsible for preserving the stability of the financial system. PMA, decision makers and banks management must retain adequate liquidity in their institutions and raise client collateral expectations to raise credit conditions.
Originality/value
This paper adds some contributions to the literature. To adjust for discrepancies between various types of banks, the authors concentrate on conventional and Islamic banks, which enables us to use a homogenous data set as opposed to depending on dichotomous variables. The authors used Z-scores, which have recently been used in research, to measure stability and FI at the level of specific institutions. This research contributes in some key aspects that no prior research has addressed. Conventional banks are different from Islamic banks, and a number of issues might impact their stability. To evaluate the connection between FI and DFSs, it is important to consider the actions of bank regulators.
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Saumen Majumdar, Swati Agarwal and Saibal Ghosh
Sudden and unannounced policy changes by the government that provide banks with windfall deposits creates a challenge in terms of resource deployment. In the process, there is an…
Abstract
Purpose
Sudden and unannounced policy changes by the government that provide banks with windfall deposits creates a challenge in terms of resource deployment. In the process, there is an impact on their risk and returns. Using data on domestic Indian commercial banks, this study aims to examine the impact of such an announcement – the 2016 demonetisation episode – on bank behaviour.
Design/methodology/approach
Using data on domestic Indian commercial banks during 2010–2020, the paper investigates the effect of a sudden and unannounced policy change on their risk and returns. Using the demonetisation undertaken in November 2016 as a natural experiment, the paper applies the difference-in-differences methodology to tease out the causal impact.
Findings
The findings reveal a decline in risk and an increase in returns of state-owned banks, consistent with a flight-to-safety. The response differed in terms of market and accounting measures and across state-owned banks with differing levels of capital and asset quality.
Originality/value
Although several aspects of the demonetisation episode have been well analysed, its impact on banks – the main conduits of the exercise – and in particular on their risk and returns, is an unaddressed area of research. Viewed from this standpoint, this is one of the early studies to undertake a comprehensive empirical analysis on this aspect.
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Conrado Diego García-Gómez, Marina Zavertiaeva and Félix J. López Iturriaga
This paper aims to study the impact of CEOs’ personality and social connections on corporate risk-taking in the Russian market.
Abstract
Purpose
This paper aims to study the impact of CEOs’ personality and social connections on corporate risk-taking in the Russian market.
Design/methodology/approach
Using a sample of 93 large listed Russian corporations between 2008 and 2016, this study tests a range of personal traits, including the classical personal characteristics like age and tenure, some country-specific traits such as connections and military experience, as well as other human and social capital characteristics.
Findings
This study finds non-linear relationships between corporate risk-taking and CEO age and tenure. This study also finds that firms run by CEOs with military experience take more corporate risk. On the CEOs’ social capital side, this study’s results suggest that both political and educational connections are positively related to corporate risk-taking.
Originality/value
This study also tests some traits that have usually been ignored by the literature, such as marital and family status.
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