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Article
Publication date: 22 June 2023

Zied Saadaoui and Salma Mokdadi

This paper aims to improve the debate linking the business models of banks to their riskiness by checking if diversification exerts different impacts on the probability of bank…

Abstract

Purpose

This paper aims to improve the debate linking the business models of banks to their riskiness by checking if diversification exerts different impacts on the probability of bank distress depending on the level of capital buffers.

Design/methodology/approach

The paper focuses on a sample of listed bank holding companies observed between 2007:Q3 and 2022:Q4. The authors use three subindexes of bank diversification. The authors estimate a dynamic model specification using a system generalized method of moments with robust standard errors and consistent estimators under heteroskedasticity and autocorrelation within a panel. Sensitivity and robustness checks are performed.

Findings

Asset and income diversification increase the probability of distress in low-capitalized banks during normal periods (excluding periods of crises and high uncertainty). Concerning crisis periods, a marginal increase in asset diversification during the global financial crisis (GFC) and the COVID-19 pandemic crisis induces a more important increase in the probability of failure of well-capitalized banks relative to low-capitalized ones. Contrary to the results obtained for the GFC period, well-capitalized banks were found to pursue more careful funding diversification in reaction to the sudden increase of uncertainty during the Russia–Ukraine war.

Research limitations/implications

Prudential supervision should concentrate on well-capitalized banks to encompass unexpected excessive risk-taking during crisis periods. Regulatory requirements should constrain fragile banks to avoid pursuing assets and income diversification strategies that increase earnings volatility.

Originality/value

The main originality of this paper is to consider the interaction between three different dimensions of bank diversification and capital regulation during stable and unstable periods using the marginal effect analysis. Moreover, this paper uses, initially, the GFC as the reference crisis period to study the impact of capital buffers and diversification interactions on the probability of bank distress. Then, the authors extend the observation period until 2022:Q4 to include two additional major events, namely, the COVID-19 pandemic and the Russia-Ukraine war.

Details

Journal of Financial Regulation and Compliance, vol. 31 no. 5
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 1 June 2010

Eleftherios Giovanis

The purpose of this paper is to examine two different approaches in the prediction of the economic recession periods in the US economy.

Abstract

Purpose

The purpose of this paper is to examine two different approaches in the prediction of the economic recession periods in the US economy.

Design/methodology/approach

A logit regression was applied and the prediction performance in two out‐of‐sample periods, 2007‐2009 and 2010 was examined. On the other hand, feed‐forwards neural networks with Levenberg‐Marquardt error backpropagation algorithm were applied and then neural networks self‐organizing map (SOM) on the training outputs was estimated.

Findings

The paper presents the cluster results from SOM training in order to find the patterns of economic recessions and expansions. It is concluded that logit model forecasts the current financial crisis period at 75 percent accuracy, but logit model is useful as it provides a warning signal three quarters before the current financial crisis started officially. Also, it is estimated that the financial crisis, even if it reached its peak in 2009, the economic recession will be continued in 2010 too. Furthermore, the patterns generated by SOM neural networks show various possible versions with one common characteristic, that financial crisis is not over in 2009 and the economic recession will be continued in the USA even up to 2011‐2012, if government does not apply direct drastic measures.

Originality/value

Both logistic regression (logit) and SOMs procedures are useful. The first one is useful to examine the significance and the magnitude of each variable, while the second one is useful for clustering and identifying patterns in economic recessions and expansions.

Details

Journal of Financial Economic Policy, vol. 2 no. 2
Type: Research Article
ISSN: 1757-6385

Keywords

Article
Publication date: 20 August 2021

Mario Jordi Maura-Pérez and Herminio Romero-Perez

This study aims to analyze the factors related to the failure of 535 Federal Deposit Insurance Corporation (FDIC)-Insured United States banks in conjunction with the 2008…

Abstract

Purpose

This study aims to analyze the factors related to the failure of 535 Federal Deposit Insurance Corporation (FDIC)-Insured United States banks in conjunction with the 2008 financial crisis.

Design/methodology/approach

The research consists of an analysis of the following three five-year partitions: pre-crisis (2002–2006), crisis (2007–2011) and post-crisis (2012–2016). The main hypothesis is that the factors explaining bank failures vary by period. Using logistic regression analysis, the authors identify the desirable models by period based on three model selection strategies.

Findings

Liquidity and non-risk-based capital ratios are important explanatory factors in all three periods. As the authors can see from the results, when comparing the full period (2002–2016) and the three five-year period partitions (2002–2006, 2007–2011 and 2012–2016), the ratios change from period to period, but they measure the same financial areas of concern in different contexts as follows: liquidity, leverage/risk exposure and capital adequacy. Risk-based capital ratios are not effective predictors of bank failures.

Originality/value

Recent academic studies have analyzed bank failures during periods that cover the years before, during and after the crisis, but most of these studies discuss bank failures in the forecasting context only. This study includes an analysis of failure determinants during pre-crisis, crisis and post-crisis subperiods based on the FDIC monitoring system of bank failures and identifies what ratios are more relevant during each period and how they change from period to period.

Details

Journal of Financial Regulation and Compliance, vol. 30 no. 1
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 25 February 2020

Dorra Ellouze

The purpose of the paper is to investigate the role of customers and employees in the buffer effect of CSR around the 2008 financial crisis in the European context.

Abstract

Purpose

The purpose of the paper is to investigate the role of customers and employees in the buffer effect of CSR around the 2008 financial crisis in the European context.

Design/methodology/approach

Using a sample of 323 European firms listed in STOXX Europe 600 Index, different models are estimated to test whether the effect of CSR ratings on firms' relationships with their customers and employees could be different during the 2008 financial crisis relative to the pre-crisis and post-crisis periods.

Findings

The paper shows that CSR rating has a significantly negative impact on firms' accounts receivable and a significantly positive effect on employee productivity during the crisis period (from 2007 to 2009). However, there is no significant effect of CSR rating during the non-crisis periods. These results suggest that during negative events, customers are willing to continue supporting high-CSR firms by paying their invoices faster. Furthermore, these firms benefit from higher productivity of their employees who are willing to work harder in periods of uncertainty.

Research limitations/implications

Firms should invest in CSR practices to maintain strong and cooperative relationships with their customers and employees. Also, investors should choose firms engaging in more social capital. Moreover, policymakers should encourage implementing CSR practices which act as an insurance-like protection in times of negative events.

Originality/value

This paper adds to the previous studies by investigating whether the cooperative role of customers and employees can explain the buffer role of CSR around the crisis. Furthermore, it considers companies located in several European countries for a long period (from 2004 to 2012) to compare periods of crisis and non-crisis.

Details

Managerial Finance, vol. 46 no. 7
Type: Research Article
ISSN: 0307-4358

Keywords

Book part
Publication date: 29 December 2016

Emawtee Bissoondoyal-Bheenick, Robert Brooks, Sirimon Treepongkaruna and Marvin Wee

This chapter investigates the determinants of the volatility of spread in the over-the-counter foreign exchange market and examines whether the relationships differ in the crisis

Abstract

This chapter investigates the determinants of the volatility of spread in the over-the-counter foreign exchange market and examines whether the relationships differ in the crisis periods. We compute the measures for the volatility of liquidity by using bid-ask spread data sampled at a high frequency of five minutes. By examining 11 currencies over a 13-year sample period, we utilize a balanced dynamic panel regression to investigate whether the risk associated with the currencies quoted or trading activity affects the variability of liquidity provision in the FX market and examine whether the crisis periods have any effect. We find that both the level of spread and volatility of spread increases during the crisis periods for the currencies of emerging countries. In addition, we find increases in risks associated with the currencies proxied by realized volatility during the crisis periods. We also show risks associated with the currency are the major determinants of the variability of liquidity and that these relationships strengthen during periods of uncertainty. First, we develop measures to capture the variability of liquidity. Our measures to capture the variability of liquidity are non-parametric and model-free variable. Second, we contribute to the debate of whether variability of liquidity is adverse to market participants by examining what drives the variability of liquidity. Finally, we analyze seven crisis periods, allowing us to document the effect of the crises on determinants of variability of liquidity over time.

Details

Risk Management in Emerging Markets
Type: Book
ISBN: 978-1-78635-451-8

Keywords

Abstract

Details

Dynamics of Financial Stress and Economic Performance
Type: Book
ISBN: 978-1-78754-783-4

Article
Publication date: 7 February 2023

Shernaz Bodhanwala and Ruzbeh Bodhanwala

The aim of this paper is to study whether adoption of sustainability policies by firms makes their stock market performance resilient to the downside risk during the crisis period.

1737

Abstract

Purpose

The aim of this paper is to study whether adoption of sustainability policies by firms makes their stock market performance resilient to the downside risk during the crisis period.

Design/methodology/approach

The paper empirically examines the relationship between environmental, social and governance (ESG) and stock market performance for Indian companies that have consistently been a part of Refinitiv Eikon ESG database. Further, the study examines whether there exist significant differences in stock market performance of high ESG and low ESG-compliant firms during crisis period. The sample was made up of 70 Indian firms studied over the period 2016–2019 defined as “normal period” as well as for the declared COVID-19 crisis period, i.e. January–March 2020, and full year 2020. The authors used multivariate panel data regression, robust least square multivariate regression, pooled OLS model and two-stage least square regression method.

Findings

The study extends the existing literature by investigating the impact of ESG performance on market value of firms during the crisis period. Based on the stakeholder and “flight to safety” theory, the authors hypothesized that ESG would have significant positive effect on the stock market performance during crisis period; however, the results provide robust evidence that in a well-specified model capturing the effect of accounting-based measures of performance, Size, Growth, Risk and Dividend yield, ESG had no explanatory power over the stock market performance of ESG-compliant firms during crisis period. Furthermore, no significant difference in stock market performance indicators between high and low ESG-compliant firms was observed during the crisis period of 1Q2020 as well as for full year 2020. On contrary, the study finds dividend yield to be statistically significant in determining stock market performance of Indian firms during crisis period. The study extends the existing literature by coining the term, “ESG irrelevance” during crisis period.

Research limitations/implications

The main limitation of this study is its limited sample size because there are very few Indian firms that have secured consistent ESG rating. The study focuses on consistently rated firms to avoid the impact of “greenwashing”. Further, the study is focused on India, which limits the generalizability of our findings to other emerging countries.

Originality/value

To the best of our knowledge, this is among the first few studies that examines sustainability and stock market performance of Indian firms during COVID-19-led crisis period. Our findings highlight no significant difference between stock market performance of high ESG firms and low ESG firms indicating that investors who wish to create wealth by investing in ESG-compliant stocks in India can do so without worrying about the companies’ ESG rating scores.

Details

Management Decision, vol. 61 no. 8
Type: Research Article
ISSN: 0025-1747

Keywords

Article
Publication date: 2 February 2023

Mourad Mroua and Hejer Bouattour

This paper examines the time-varying return connectedness between renewable energy, oil, precious metals, the Gulf Council Cooperation region and the United States stock markets…

Abstract

Purpose

This paper examines the time-varying return connectedness between renewable energy, oil, precious metals, the Gulf Council Cooperation region and the United States stock markets during two successive crises: the pandemic Covid-19 and the 2022 Russo-Ukrainian war. The main objective is to investigate the effect of the Covid-19 pandemic and the Russo-Ukrainian war on the connectedness between the considered stock markets.

Design/methodology/approach

This paper uses the time-varying parameter vector autoregression approach, which represents an extension of the Spillover approach (Diebold and Yilmaz, 2009, 2012, 2014), to examine the time-varying connectedness among stock markets.

Findings

This paper reflects the effect of the two crises on the stock markets in terms of shock transmission degree. We find that the United States and renewable energy stock markets are the main net emitters of shocks during the global period and not just during the two considered crises sub-periods. Oil stock market is both an emitter and a receiver of shocks against Gulf Council Cooperation region and United States markets during the full sample period, which may be due to price fluctuation especially during the two crises sub-periods, which suggests that the future is for renewable energy.

Originality/value

This paper examines the effect of the two recent and successive crises, the Covid-19 pandemic and the 2022 Russo-Ukrainian war, on the connectedness among traditional stock markets (the United States and Gulf Council Cooperation region) and commodities stock markets (renewable energy, oil and precious metals).

Details

Journal of Financial Economic Policy, vol. 15 no. 2
Type: Research Article
ISSN: 1757-6385

Keywords

Article
Publication date: 13 October 2022

Imen Khanchel and Naima Lassoued

This paper aims to contribute to the literature on the earnings management (EM)–corporate social responsibility (CSR) relationship as most of the previous studies have been…

Abstract

Purpose

This paper aims to contribute to the literature on the earnings management (EM)–corporate social responsibility (CSR) relationship as most of the previous studies have been carried out in non-turbulent periods. This study investigates whether CSR affects EM during the pandemic period by testing two hypotheses: the cognitive biases hypothesis and the resilience hypothesis

Design/methodology/approach

The difference-in-difference and triple difference approaches are used for a sample of 536 US firms (268 socially responsible firms and 268 matched non-socially responsible counterparts) during the 2017–2021 period. Socially responsible firms are selected from the MSCI KLD 400 Social Index, and matched firms are identified through the propensity score matching method.

Findings

The authors find an income-increasing practice for both socially responsible firms and control firms for the whole period and each sub-period. Moreover, socially responsible firms are more likely to manage their earnings (income increasing) than their counterpart. Furthermore, the authors show that CSR commitment exacerbated EM in line with the cognitive biases hypothesis.

Originality/value

This study is the first shed light on the dark side of CSR during pandemic periods.

Details

International Journal of Ethics and Systems, vol. 40 no. 1
Type: Research Article
ISSN: 2514-9369

Keywords

Article
Publication date: 9 July 2018

Ziyaad Mahomed, Shamsher Ramadilli and Mohamed Ariff

The effects of capital-raising announcements have long been used as an indicator of increased shareholder wealth (Brown and Warner, 1985). Studies on bond announcements, for…

Abstract

Purpose

The effects of capital-raising announcements have long been used as an indicator of increased shareholder wealth (Brown and Warner, 1985). Studies on bond announcements, for example, have been largely inconclusive. However, when effects are measured based on bond underlying structure, “straight and convertible bonds”, then the results are more conclusive (Abdul Rahim, 2012). Furthermore, issuances around crisis period are expected to result in negative market reaction as investors prefer liquidity (Fenn, 2000).

Design/methodology/approach

Sukuk are bond-like instruments that are issued based on the Sharia guidelines and perceived to be less risky due to their risk sharing attribute. Sukuk are issued by the governments and also corporations. Sukuk can either be debt-based or equity-based. The former resembles the conventional bond, and equity-based Sukuk resembles the convertible bonds. It is interesting to ascertain the market reaction to issuance of both type of Sukuk. This study determines the wealth effects of debt-based Sukuk issuances in Indonesia, around crisis period. Sukuk issues have steadily increased in Indonesia, and it is the second largest issuer in 2015 (Zawya, 2015a, 2015b).

Findings

The market reaction to corporate Sukuk issuance by Indonesian firms is yet to be documented, and the findings of this study address this issue, especially during the crisis period when the risk aversion is high and investors prefer liquidity. The Bai and Perron’s (2003) multiple breakpoint analysis was applied to determine the crisis period, which was between 2007 and 2010.

Originality/value

The findings suggest that the market reacts positively and significantly to debt-based Sukuk issuance during the crisis period, contrary to the theory that postulates a negative market reaction. Though these findings seem to be unique, it is possible that it is a behavioral effect of investors requiring less liquidity premium during crisis, contrary to expectations (Chen et al., 2007; Amihud and Mendelson, 1986).

Details

Journal of Islamic Accounting and Business Research, vol. 9 no. 4
Type: Research Article
ISSN: 1759-0817

Keywords

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