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Article

Marc Robinson

The application of capital charges to core government agencies (those which produce tax-financed outputs) is one of a number of steps being taken by certain governments as…

Abstract

The application of capital charges to core government agencies (those which produce tax-financed outputs) is one of a number of steps being taken by certain governments as part of a broader strategy to place such agencies upon a market footing. Capital charging involves the levying upon these agencies of charges designed to reflect the cost of the capital which they employ. This article presents a theoretical evaluation of capital charging which identifies the manner in which imperfect information, uncertainty and the expenditure control imperative undermine the system’s raison d’être.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 10 no. 3
Type: Research Article
ISSN: 1096-3367

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Article

Julie Froud, Colin Haslam, Sukhdev Johal, Jean Shaoul and Karel Williams

Using the example of capital charging in UK hospitals, this paper shows how new public policy initiatives are justified through forms of persuasion without numbers and can…

Abstract

Using the example of capital charging in UK hospitals, this paper shows how new public policy initiatives are justified through forms of persuasion without numbers and can be challenged with empirics. A reading of official and academic texts shows how the official problem definition focuses on poor asset utilisation. Hospital accounts are then reworked to show that, although poor asset utilisation was never a major problem, the introduction of capital charges could disrupt service provision. The conclusion is that the operation of NHS hospitals should be understood in terms of distributive conflict, rather than inefficiency. Through practical demonstration, the authors of this article aim to encourage accounting researchers to use numbers to challenge public policy definitions.

Details

Accounting, Auditing & Accountability Journal, vol. 11 no. 1
Type: Research Article
ISSN: 0951-3574

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Article

Sheila Masters

The first part of this paper outlines the reasons for introducing capital charges in the National Health Service (the NHS) in England and the aims and objectives of the…

Abstract

The first part of this paper outlines the reasons for introducing capital charges in the National Health Service (the NHS) in England and the aims and objectives of the scheme. The second part of the paper outlines how capital charges will operate and addresses some specific common issues which have been raised. This section also refers to the methodology for developing the scheme and disseminating information on its implementation. The third section of the paper examines the current and future implications of capital charges for the NHS.

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Journal of Management in Medicine, vol. 4 no. 4
Type: Research Article
ISSN: 0268-9235

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Article

Mika Veli-Pekka Viljanen

– The purpose of this paper is to aid understanding of the changes in Basel Committee on Banking Supervision (BCBS) regulatory strategies after the global financial crisis.

Abstract

Purpose

The purpose of this paper is to aid understanding of the changes in Basel Committee on Banking Supervision (BCBS) regulatory strategies after the global financial crisis.

Design/methodology/approach

The author uses the credit valuation adjustment (CVA) charge reform as a test case for inquiring whether BCBS has departed from its pre-crisis facilitative regulatory strategy path. The regulatory strategy of the CVA charge is discussed.

Findings

The charge exhibits a new regulatory strategy that BCBS has adopted. It seeks to manipulate market structures by imposing risk-insensitive capital charge methodologies.

Originality/value

The paper offers a new heuristic to analyse regulatory initiatives and their significance. The CVA charge has not been subject to a regulatory theory-based analysis in prior literature.

Details

Journal of Financial Regulation and Compliance, vol. 23 no. 3
Type: Research Article
ISSN: 1358-1988

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Article

MATTHEW ELDERFIELD

The paper analyses the current two main initiatives in capital adequacy regulation for banks: the EC Capital Adequacy Directive (CAD) and the Basle Committee on Banking…

Abstract

The paper analyses the current two main initiatives in capital adequacy regulation for banks: the EC Capital Adequacy Directive (CAD) and the Basle Committee on Banking Supervision market risk proposals. The main elements of the CAD are reviewed, problem areas are identified and differences with the Basle proposals are noted. Finally, the paper sets out the likely impact of the CAD and the Basle proposals on UK banks.

Details

Journal of Financial Regulation and Compliance, vol. 2 no. 4
Type: Research Article
ISSN: 1358-1988

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Article

Andreas Jobst

This paper provides a comprehensive overview of the gradual evolution of the supervisory policy adopted by the Basel Committee for the regulatory treatment of asset…

Abstract

This paper provides a comprehensive overview of the gradual evolution of the supervisory policy adopted by the Basel Committee for the regulatory treatment of asset securitisation. The pathology of the new “securitisation framework” is carefully highlighted to facilitate a general understanding of what constitutes the current state of computing adequate capital requirements for securitised credit exposures. Although a simplified sensitivity analysis of the varying levels of capital charges depending on the security design of asset securitisation transactions is incorporated, the author does not engage in a profound analysis of the benefits and drawbacks implicated in the new securitisation framework.

Details

Journal of Financial Regulation and Compliance, vol. 13 no. 1
Type: Research Article
ISSN: 1358-1988

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Article

Nopadol Rompho

This paper attempts to propose the uses of a capital budgeting tool, the Economic Value Added (EVA)for a university. Although there are reports of widespread use of the…

Abstract

This paper attempts to propose the uses of a capital budgeting tool, the Economic Value Added (EVA)for a university. Although there are reports of widespread use of the EVA in many for‐profit organisations, there is no evidence in literature that it has been adopted as a capital budgeting tool for a university. In this paper the application of the EVA for a university is proposed. It shows how the EVA can increase the awareness of the importance of asset utilisation in universities and guide universities to better resource management. EVA is proposed for use in a university setting in two different segments: for‐profit and non‐profit. The EVA has been adjusted with a new measure, Academic Value Added Ratio (AVAR) to reflect the university’s objective. The perception of academic staff in the case study university in Thailand with regards to the concept of applying the EVA to a university is further investigated. The results indicate that most members of management staff do not oppose this concept if it is implemented in a proper way.

Details

Journal of Financial Reporting and Accounting, vol. 7 no. 2
Type: Research Article
ISSN: 1985-2517

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Article

Mark Deakin

The paper examines the development of the financial instruments (land audits, property reviews, information systems, registers and approaches to valuation) required to…

Abstract

The paper examines the development of the financial instruments (land audits, property reviews, information systems, registers and approaches to valuation) required to replace the expenditure‐driven logic of public sector finance with the system of capital accounting in local authorities advocated by the Chartered Institute of Public Finance and Accountancy. The examination draws on the findings of a research project undertaken to survey the steps local authorities have taken to develop the property registers and valuation procedures for such purposes. It highlights the critical role property valuation plays in introducing a system of capital accounting that ensures that the financing of the public sector is not expenditure‐driven, but subject to value‐for‐money tests, and meets the economy and efficiency criteria which this requires.

Details

Journal of Property Investment & Finance, vol. 17 no. 1
Type: Research Article
ISSN: 1463-578X

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Article

Min Xu, Hong Xie and Yuehua Wu

The purpose of this paper is to analyze different behaviors between long-term options’ implied volatilities and realized volatilities.

Abstract

Purpose

The purpose of this paper is to analyze different behaviors between long-term options’ implied volatilities and realized volatilities.

Design/methodology/approach

This paper uses a widely adopted short interest rate model that describes a stochastic process of the short interest rate to capture interest rate risk. Price a long-term option by a system of two stochastic processes to capture both underlying asset and interest rate volatilities. Model capital charges according to the Basel III regulatory specified approach. S&P 500 index and relevant data are used to illustrate how the proposed model works. Coup with the low interest rate scenario by first choosing an optimal time segment obtained by a multiple change-point detection method, and then using the data from the chosen time segment to estimate the CIR model parameters, and finally obtaining the final option price by incorporating the capital charge costs.

Findings

Monotonic increase in long-term option implied volatility can be explained mainly by interest rate risk, and the level of implied volatility can be explained by various valuation adjustments, particularly risk capital costs, which differ from existing published literatures that typically explained the differences in behaviors of long-term implied volatilities by the volatility of volatility or risk premium. The empirical results well explain long-term volatility behaviors.

Research limitations/implications

The authors only consider the market risk capital in this paper for demonstration purpose. Dealers may price the long-term options with the credit risk. It appears that other than the market risks such as underlying asset volatility and interest rate volatility, the market risk capital is a main nonmarket risk factor that significantly affects the long-term option prices.

Practical implications

Analysis helps readers and/or users of long-term options to understand why long-term option implied equity volatilities are much higher than observed. The framework offered in the paper provides some guidance if one would like to check if a long-term option is priced reasonable.

Originality/value

It is the first time to analyze mathematically long-term options’ volatility behavior in comparison with historically observed volatility.

Details

Studies in Economics and Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1086-7376

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Article

André Gabor and I.F. Pearce

I. Outline of the problem of capital and of the need to reconcile its treatment by Austrian and neo‐classical theorists, as also to establish a link between economics and…

Abstract

I. Outline of the problem of capital and of the need to reconcile its treatment by Austrian and neo‐classical theorists, as also to establish a link between economics and accountancy practice. II. Introduction to the concept of the money capital requirement function and the criteria of profit rate maximisation. III. Synthesis of divergent theories by full development of a new generalised money capital requirement function. IV. Comparison of the results here obtained with those of neoclassical theory. V. Summary.

Details

International Journal of Social Economics, vol. 6 no. 5
Type: Research Article
ISSN: 0306-8293

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