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Article
Publication date: 7 August 2017

Amit Ghosh

Using time-series data on the US banking industry for the period 1984Q1-2016Q2, the present study aims to examine the impact of both aggregate and sector-specific non-performing…

Abstract

Purpose

Using time-series data on the US banking industry for the period 1984Q1-2016Q2, the present study aims to examine the impact of both aggregate and sector-specific non-performing loans (NPLs) on aggregate and sectoral product and labor markets.

Design/methodology/approach

Using both single equation ordinary least squares and instrumental variables regressions, the study compares the sensitivity of sector-specific gross domestic product (GDP) and employment growth to changes in both aggregate and sectoral NPLs. Moreover, the paper uses vector autoregressions (VARs) to dynamically trace the impact and duration of NPLs on different types of real economic activity..

Findings

Rise in total NPLs reduces US real GDP growth that is most accentuated for construction sector GDP. Likewise, total NPLs significantly lowers both total and non-farm employment growth, financial activities and construction sector employment growth, with the latter showing most sensitivity. Moreover, NPLs in commercial and industrial sector, consumer lending, non-farm non-residential, construction and land development, single- and multi-family residential sectors reduce corresponding sectoral employment growth. The VARs largely confirm these findings with shocks to total NPLs having the most immediate and persistent inimical impact on construction-sector GDP growth.

Practical implications

The deleterious impact of different categories of NPLs on both aggregate as well as sector-specific product and labor markets illustrate that a distressed banking sector is a serious obstacle to the real sector. The findings underscore the need not only to clean up NPLs for the sake of banks financial soundness but also to reduce their pernicious effects on the health of the US economy. For bank regulatory authorities in the USA, it indicates constant monitoring of banks in their jurisdiction and identifying early warning signals to mitigate the potential real sector losses due to rising NPLs.

Originality value

The extant literature on NPLs has mainly focused on explaining its underlying determinants but not on its real sector consequences. The present paper examines the impact of NPLs on different facets of real economic activity, an issue that has been rarely studied and especially not on the US economy. Moreover, the overwhelming majority of existing literature focuses on aggregate NPLs. The relationships derived in such studies, while useful, can mask important differences between different types of NPLs and real economic activity. The present paper explores the impact of disaggregated NPLs in the US banking industry on corresponding sector-specific product and labor markets, again an issue that has not been studied previously.

Article
Publication date: 1 March 2021

Amit Ghosh

Using an extensive data set of 137 nations spanning the period 2002–2014, this paper aims to examine the effect of banking sector openness on entrepreneurship, as measured by new…

Abstract

Purpose

Using an extensive data set of 137 nations spanning the period 2002–2014, this paper aims to examine the effect of banking sector openness on entrepreneurship, as measured by new business entry rate.

Design/methodology/approach

The paper uses a panel data estimation framework covering 137 nations during 2002–2014. This study uses fixed effects, two-stage instrumental variables, two-step systems-generalized method of moments and difference-in-difference estimation methodologies.

Findings

Greater banking sector openness significantly increases new business formations. This paper finds a one-unit increase in the share of non-residential bank loans leads to 1.25 new business start-ups in the average nation. Likewise, a unit increase in the ratio of external to domestic deposits raises new business formation by 1.31 new businesses. Furthermore, the positive impact of banking sector openness on entrepreneurial activities is strengthened in nations with deeper financial markets, ones with better business environments to start a business and those with higher economic growth and development.

Practical implications

These findings have key implications for policy measures on both institutional business entry reforms and banking sector openness and the interaction between the two. From a policy perspective, the results show greater banking sector openness can only maximize its benefits on entrepreneurship in the presence of an effective institutional framework and sound macroeconomic fundamentals in host nations. It is also imperative that policymakers simplify regulations for the entry of new businesses. Additionally, achieving higher economic growth rates and greater economic affluence should allow both current and potential business owners to respond better to changes in financing conditions like greater access to loans from foreign banks.

Originality/value

Entrepreneurship and new business formation are central to any economic and business activity in a nation. The entrance of new firms into an economy creates jobs, fosters research, diffusion of knowledge and innovation and contributes to economic growth. Liberalizing a nation’s banking industry may represent an invaluable source of capital for new entrepreneurs and foster the creation of new companies. However, there is scant literature that has empirically examined the impact of opening up a nation’s banking sector on new business formations.

Article
Publication date: 1 November 2018

Amit Ghosh

Using data on 5,176 commercial banks in the USA for the period 1999Q1-2016Q3, the present study aims to examine the underlying determinants of loan charge-off rates.

Abstract

Purpose

Using data on 5,176 commercial banks in the USA for the period 1999Q1-2016Q3, the present study aims to examine the underlying determinants of loan charge-off rates.

Design/methodology/approach

The study uses panel data fixed-effects estimation methodology.

Findings

Greater regulatory capital, more diversification, higher profits and cost efficiency reduce charge-off rates. On the contrary, a higher share of loans in banks asset portfolio and a higher share of real estate loans have a detrimental impact on loan performance. Moreover, strong US macroeconomic fundamentals reduce loan charge-offs. Finally, real estate loan charge-offs are most sensitive to balance sheet conditions.

Practical Implications

Consistent with Basel-III regulation, the results underscore the importance of banks to remain well capitalized. Greater tier-1 capital refrains banks from risky lending practices, thereby improving their loan performance. It is also important that banks maintain a diversified income stream and earn higher profitability. Finally, managerial inefficiencies leading to higher non-interest expense needs to be reduced to improve loan performance.

Originality/value

Although a burgeoning body of literature has examined the underlying factors that affect poor quality loans in both the USA and elsewhere, fewer studies have focused on loan performance. From the perspective of banking regulation and fostering banking stability, determining the factors that affect loan charge-offs is extremely crucial to identify channels through which loan performance is either worsened or improved. If we understand poor loan performance, we can use that knowledge to anticipate the possibility of bankruptcy.

Details

Journal of Financial Regulation and Compliance, vol. 26 no. 4
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 5 June 2017

Amit K. Ghosh

The constantly changing prices, promotions, and packaging options have made decision making more complex for consumers of packaged goods. The purpose of this paper is to explore…

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Abstract

Purpose

The constantly changing prices, promotions, and packaging options have made decision making more complex for consumers of packaged goods. The purpose of this paper is to explore how price and promotions influence consumer propensity to buy a certain package size.

Design/methodology/approach

Scanner panel data for shelf-stable salad dressing obtained from Information Resources Inc. were used to compute the proportion of large packages bought, the relative price paid for large packages, propensity to use various types of promotions, and a behavioral covariate for each household. Data of over 5,600 households were analyzed using a multiple regression analysis for hypothesis testing.

Findings

The positive nature of relationship between the relative price of large packages and the proportion of large packages bought demonstrates the suboptimal nature of consumer decision making. The inefficiency is partially attributable to the abundance of promotions, to consumers’ lack of price awareness, and to the use of heuristics by consumers. Also, consumers who are prone to use promotions such as displays and temporary price reductions tend to purchase larger packages. They are more likely to buy impulsively and base their decisions on heuristics. In contrast, consumers who are influenced by featured price cuts and who utilize coupons tend to purchase smaller packages.

Research limitations/implications

Data were obtained from grocery stores; only a single product category was studied.

Practical implications

Offer coupons and advertise featured price cuts on small packages to increase the sales of smaller packages. To move large packages successfully, retailers should rely more on in-store displays and temporary price reductions.

Originality/value

The impact of price and promotions on package size propensity has never been investigated. This study is also one of the few that uses a household-level analysis based on observable purchase data for consumer packaged goods.

Details

American Journal of Business, vol. 32 no. 2
Type: Research Article
ISSN: 1935-5181

Keywords

Article
Publication date: 30 May 2018

Amit Ghosh

This paper aims to examine the consequences of banks asset, funding and income diversification on regional economic stability in the USA by using data on all 50 states and…

Abstract

Purpose

This paper aims to examine the consequences of banks asset, funding and income diversification on regional economic stability in the USA by using data on all 50 states and Washington, DC for 17 industries and their disaggregated constituent categories.

Design/methodology/approach

By using a panel dataset across industries and states in the USA, the author explains sector-specific state-level variation in average GDP growth during 2008-2009 using the average bank diversification during 2006-2007, as well as pre-crisis level growth rates in GDP, multifactor productivity in each industry and pre-crisis period state-specific key banking conditions.

Findings

The author finds banks’ pre-crisis level of diversification to have a positively significant impact on sector-specific state-level GDP growth during the Great Recession. The positive impact of banks diversification activities on industry-specific output growth across states is most pronounced for funding diversification.

Practical implications

The results indicate that bank diversification activities could be used as a measure to resuscitate an ailing economy and enhance the resilience of the real sector to financial sector distress. The same applies for banks capitalization and profitability.

Originality/value

Although a burgeoning body of literature has examined different aspects of banks income diversification, focusing mainly on its effects on risk and returns, the real sector implications of bank diversification activities have been rarely studied, especially in the US context.

Article
Publication date: 4 April 2016

Amit Ghosh

Using state-level data, the purpose of this paper is to examine state banking-industry specific as well as region economic determinants of real estate lending of commercial banks…

Abstract

Purpose

Using state-level data, the purpose of this paper is to examine state banking-industry specific as well as region economic determinants of real estate lending of commercial banks across all 51 states spanning the period 1966-2014.

Design/methodology/approach

Using both fixed-effects and dynamic-generalized method of moments (GMM) estimation techniques the study compares the sensitivity of different categories of real estate loans to regional banking and economic conditions. Finally, it provides a comparative perspective by comparing the results for real estate loans with other categories of loans given out by banks.

Findings

Greater capitalization, liquidity and overhead costs reduce real estate lending, while banks diversification and the size of the banking industry in each state increase such lending. Moreover, real estate loans are found to be procyclical to state economic cycles with a rise in state real gross domestic product (GDP) growth, increase in state housing price index (HPI) and decline in both inflation and unemployment rates, increasing real estate loans. Within disaggregated loan types, construction and land development and single-family residential loans are most responsive to state banking and economic conditions.

Originality/value

The recent financial turmoil is to a large extent attributable to excessive risk-taking by banks, particularly in terms of real estate lending. Hence, it is of paramount importance to empirically address the various determinants of real estate lending. With most banks restricting their operations in either one or a few states only, real estate lending in any given state may be more sensitive to regional banking and economic conditions than national aggregates. The present study is the first of its type to perform such an analysis.

Details

Journal of Financial Economic Policy, vol. 8 no. 1
Type: Research Article
ISSN: 1757-6385

Keywords

Article
Publication date: 20 March 2017

Amit Ghosh

Using data on 5,491 commercial banks in the USA that were operational between 2001 second quarter and 2016 first quarter, the present study aims to examine the impact of…

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Abstract

Purpose

Using data on 5,491 commercial banks in the USA that were operational between 2001 second quarter and 2016 first quarter, the present study aims to examine the impact of derivative securities and its different constituent categories on bank-specific risks and profitability.

Design/methodology/approach

The study uses panel data fixed effects model and Bayesian model averaging techniques.

Findings

This study finds aggregate derivatives and both interest-rate and exchange-rate derivatives and their different constituent categories to reduce banks insolvency risks for the entire time period and the pre-crisis era. Moreover, aggregate derivatives increase banks’ risk-adjusted return on assets that are driven by exchange-rate derivatives. Such findings are robust to the size of banks, the degree of derivative use and extent of profitability. However, in the post-crisis period, derivatives reduce bank profits.

Practical implications

While the results largely provide evidence of the beneficial effects of derivatives, the findings for the post-crisis period are rather concerning. It underscores a clear need to improve regulation and supervision across different categories of derivatives to ensure the benefits exceed their costs for banks.

Originality/value

Disaggregate analysis of derivatives can not only unmask important differences in how they affect banks risks, profits, etc. but also help banks mitigate risks arising from specific types of derivative securities banks hold. Furthermore, discerning the impact of derivatives on banks risks and profits in the post-crisis era vis-à-vis the pre-crisis one is extremely important to restore a sounder banking system and foster overall financial stability.

Details

The Journal of Risk Finance, vol. 18 no. 2
Type: Research Article
ISSN: 1526-5943

Keywords

Article
Publication date: 12 September 2018

Mahmoud Mousavi Shiri, Mahdi Salehi, Fatemeh Abbasi and Shayan Farhangdoust

In the process of reporting accounting information, the auditor’s objective is to detect possible misstatements and errors in accounting information. Audit evidence aids auditors…

Abstract

Purpose

In the process of reporting accounting information, the auditor’s objective is to detect possible misstatements and errors in accounting information. Audit evidence aids auditors in providing reasonable assurance about the quality of financial reporting. Studying the quality of family firms’ financial reporting is of higher importance relative to non-family firms due to lower risk of accounting manipulation. Therefore, the purpose of this paper is to examine the relationship between family ownership structure and financial reporting quality from an auditing perspective.

Design/methodology/approach

To analyze the research hypotheses, the authors use a sample data consisted of 221 companies listed on the Tehran Stock Exchange (including 52 family and 169 non-family firms) over a five-year span from 2011 to 2015.

Findings

Using multivariate regression analysis of panel data, our results indicate that audit risk in family firms is lower than their counterparts. Likewise, the findings are indicative of lower audit fees paid by family firms as compared to non-family ones. The authors also find that auditors put more effort in family firms and thus audit effort is more significant for these kinds of firms.

Originality/value

The study focuses on family ownership and financial reporting quality in a developing country like Iran and the results of the study may be beneficial to other developing nations, as Iran stock market possesses some unique features which are not normally prevailing in other equity markets, even in the Middle East.

Details

Journal of Family Business Management, vol. 8 no. 3
Type: Research Article
ISSN: 2043-6238

Keywords

Article
Publication date: 1 April 1998

Amit K. Ghosh

Liberalization policies of the Mexican government in the last decade and the enactment of NAFTA in 1994 have provided US firms with an opportunity to expand into Mexico. Before…

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Abstract

Liberalization policies of the Mexican government in the last decade and the enactment of NAFTA in 1994 have provided US firms with an opportunity to expand into Mexico. Before entering the Mexican market, however, managers should be aware of current conditions in Mexico and of the changes likely over the short term and long term. This paper explores which market opportunities are available immediately, which over the next five years, and which over the next decade. Brand management guidelines to exploit each are suggested.

Details

Journal of Product & Brand Management, vol. 7 no. 2
Type: Research Article
ISSN: 1061-0421

Keywords

Article
Publication date: 1 July 1997

Amit K. Ghosh and Martha C. Cooper

Canadian and United states managers identified NAFTA‐related benefits and threats. These factors were related to the managers' overall perceptions of the effect of NAFTA on firm…

Abstract

Canadian and United states managers identified NAFTA‐related benefits and threats. These factors were related to the managers' overall perceptions of the effect of NAFTA on firm performance. Results indicated that NAFTA's perceived benefits include increased access to the Mexican market and to other Latin American markets, improved customs procedures, and increased effectiveness and efficiency in logistics. However, managers were concerned about inefficiencies in logistics and customs procedures, currency fluctuations, and differences in culture and business practices. Managers with little experience in Mexico had lower estimates of NAFTA's potential benefits, the barriers to trade in Mexico, and NAFTA's potential positive impact on their firm's performance. They also believed that NAFTA's primary influence on firm performance arises from the increased access to Latin American markets, while barriers in Mexico were discounted. The view of experienced managers was balanced: NAFTA's benefits were weighed against Mexico's drawbacks. Access to the Mexican market was important, but not as important as logistics‐related benefits.

Details

The International Journal of Logistics Management, vol. 8 no. 2
Type: Research Article
ISSN: 0957-4093

Keywords

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