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Article
Publication date: 21 September 2021

Faisal Abbas and Adnan Bashir

The purpose of this study is to investigate the impact of leverage, regulatory capital and tier-I capital ratios on the ex ante and ex post risk of Japanese banks.

Abstract

Purpose

The purpose of this study is to investigate the impact of leverage, regulatory capital and tier-I capital ratios on the ex ante and ex post risk of Japanese banks.

Design/methodology/approach

To test the hypotheses, the authors have implemented a panel of 507 commercial and cooperative banks of Japan over the period extending from 2001 to 2020, using a two-step system Generalized Method of Moments (GMM) framework.

Findings

The overall sample banks' results show that the impact of leverage, regulatory capital and tier-I capital ratios on ex ante and ex post risk is positive. The findings reveal that the effects of regulatory and tier-I capital ratios on ex post risk are negative (positive) for commercial (cooperative) banks, high-liquid, low-liquid and high-growth banks in Japan. In addition, the regulatory capital ratio is more beneficial for risk due to its power to absorb losses. The lagged coefficient indicates that banks require more time to adjust their ex post and ex ante risk during crisis period than during normal economic conditions.

Practical implications

The heterogeneity in results has practical implications for regulators, policymakers and bank managers in formulating the capital requirement guidelines with respect to ex ante and ex post risk across different categories and characteristics of banks.

Originality/value

To the best of the authors' knowledge, this is the first study investigating the impact of leverage, regulatory capital and tier-I capital ratios on the ex ante and ex-post risk of Japanese commercial and cooperative banks over the period from 2001 to 2020. The insights into the impact of leverage, regulatory capital and tier-I capital ratios on the ex ante and ex post risk of well-capitalized, under-capitalized, high and low-liquid banks are new in the context of Japan.

Details

Journal of Economic and Administrative Sciences, vol. 39 no. 4
Type: Research Article
ISSN: 1026-4116

Keywords

Article
Publication date: 1 June 2005

Stephen Lee and Simon Stevenson

The use of modern portfolio theory (MPT) in the construction real estate portfolios has two serious limitations when used in an ex ante framework: the intertemporal instability of…

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Abstract

Purpose

The use of modern portfolio theory (MPT) in the construction real estate portfolios has two serious limitations when used in an ex ante framework: the intertemporal instability of the portfolio weights; and the sharp deterioration in performance of the optimal portfolios outside the sample period used to estimate asset mean returns. Both problems can be traced to wide fluctuations in sample means. Aims to prove that the use of a procedure that ignores the estimation risk due to the uncertain in mean returns is likely to produce sub‐optimal results in subsequent periods.

Design/methodology/approach

This study extends previous ex ante‐based studies by evaluating ex post optimal portfolio allocations in subsequent test periods by using methods that have been proposed to reduce the effect of measurement error on optimal portfolio allocations.

Findings

While techniques designed to handle estimation risk in capital market studies have yielded promising results, they are not completely successful in improving out‐of‐sample performance in this case. It is hypothesised that such results are due to the cyclical nature of property and that the contrarian and mean‐reversion effects picked up in studies of stocks and bonds are not captured when an asset such as direct property is examined. This conclusion is also supported by the strong performance of the tangency portfolios, and in particular the classical unadjusted Sharpe portfolio, over the shorter horizons, which would be consistent with a cyclical momentum effect.

Originality/value

The results suggest that the consideration of the issue of estimation risk is crucial in the use of MPT in developing a successful real estate portfolio strategy.

Details

Journal of Property Investment & Finance, vol. 23 no. 3
Type: Research Article
ISSN: 1463-578X

Keywords

Article
Publication date: 1 August 2003

Tien Foo Sing and Sook Beng Stephanie Sng

This study tests the hypothesis of market integration between the securitised and the unsecuritised real estate market by examining the information contents of their respective ex

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Abstract

This study tests the hypothesis of market integration between the securitised and the unsecuritised real estate market by examining the information contents of their respective expost conditional volatility measures. The two markets are said to be integrated if the conditional volatility terms of one market do not contain incremental information for the expost conditional volatility of another market. Our empirical results showed no evidence of the expost returns of the direct real estate (PPI) market incorporating the market volatility of the securitized real estate asset. The expost conditional volatility of the PPI market, which contains only information on the past shock and the past conditional volatility, is sufficient to statistically explain the variation in the log‐PPI price variations. However, there was significant evidence of incremental information flowing from conditional volatility of the unsecuritized property market to the securitized property market. Therefore, the securtized and unsecuritized real estate markets are integrated, but the integration is only uni‐directional. Some degree of segmentation is still observed as the information of property market (PPI) still has significant impacts on the returns of the property stock market.

Details

Journal of Property Investment & Finance, vol. 21 no. 4
Type: Research Article
ISSN: 1463-578X

Keywords

Book part
Publication date: 11 August 2016

Knut F. Lindaas and Prodosh Simlai

We examine the incremental cross-sectional role of several common risk factors related to size, book-to-market, and momentum in size-and-momentum-sorted portfolios. Unlike the…

Abstract

We examine the incremental cross-sectional role of several common risk factors related to size, book-to-market, and momentum in size-and-momentum-sorted portfolios. Unlike the existing literature, which focuses on the conditional mean specification only, we evaluate the common risk factors’ incremental explanatory power in the cross-sectional characterization of both average return and conditional volatility. We also investigate the role of ex-ante market risk in the cross-section. The empirical results demonstrate that the size-and-momentum-based risk factors explain a significant portion of the cross-sectional average returns and cross-sectional conditional volatility of the benchmark equity portfolios. We find that the Fama–French (1993) factors and the ex-ante market risk are priced in the cross-sectional conditional volatility. We conclude that the size-and-momentum-based factors provide a source of risk that is independent of the Fama–French factors as well as ex-post and ex-ante market risk. Our results bolster the risk-based explanation of the size and momentum effects.

Details

The Spread of Financial Sophistication through Emerging Markets Worldwide
Type: Book
ISBN: 978-1-78635-155-5

Keywords

Article
Publication date: 28 June 2011

Saji K. Mathew

Although risks and client‐vendor relationships in IT outsourcing have been studied in prior research, there is a paucity of studies providing insights on the mitigation of client…

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Abstract

Purpose

Although risks and client‐vendor relationships in IT outsourcing have been studied in prior research, there is a paucity of studies providing insights on the mitigation of client risks through the relationship. This research aims to focus on mitigation of the ex post risks of firms engaged in offshore software development (OSD). Client risks due to service provider behavior are identified first. Further, this work seeks to identify relationship variables that could reduce the impact of determinants of risk on a risk category.

Design/methodology/approach

This research followed a multiple case study method aiming to build insights and directions that would facilitate further research. The paper's goal of sampling was to choose cases which were likely to extend the emergent theory pertaining to risks and their mitigation through relationships.

Findings

Findings from this study show that shirking, loss of control over information assets, and service provider lock‐in are the three categories of ex post risks. A relationship management strategy ensuring reasonable profits to the vendor could mitigate shirking risk. Trustworthiness of vendors established through credibility and benevolence in prior engagements could mitigate the risk of loss of control over information assets. Further, dependence balancing through a multi‐vendor offshoring strategy and joint investments in relationship‐specific assets could mitigate the risk of service provider lock‐in.

Practical implications

The findings from this research provide useful insights in vendor selection and management process.

Originality/value

This paper adds to the growing body of literature in offshore IT outsourcing and makes two significant contributions: identification and categorization of risks due to vendor behavior and their determinants in OSD; and understanding the role of relationship dimension in mitigating such risks in OSD.

Details

Strategic Outsourcing: An International Journal, vol. 4 no. 2
Type: Research Article
ISSN: 1753-8297

Keywords

Article
Publication date: 1 June 2000

Richard T. Dye and John C. Groth

Reviews the previous research on the management of portfolio investment and compares the performance of a typical small investor’s portfolio of nine popular stocks (optimized…

Abstract

Reviews the previous research on the management of portfolio investment and compares the performance of a typical small investor’s portfolio of nine popular stocks (optimized portfolio) with a value‐weighted portfolio (VW), using 1992‐1997 US data. Explains how the portfolios were derived on a rolling basis from the previous 30 months’ data, using four risk levels for the optimized portfolios (OPs). Shows that as risk aversion increases for OPs, minimum returns tend to decrease but average returns increase; but that VW provides superior returns with less volatility. Considers the underlying reasons for the results, concludes that diversification is important even when small numbers of stocks are involved; and suggests some avenues for further research.

Details

Managerial Finance, vol. 26 no. 6
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 11 March 2014

Irene Comeig, Esther B. Del Brio and Matilde O. Fernandez-Blanco

The current credit rationing strongly influences the viability of SMEs innovation projects. In this context, the practice of screening borrowers by project success probability has…

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Abstract

Purpose

The current credit rationing strongly influences the viability of SMEs innovation projects. In this context, the practice of screening borrowers by project success probability has become a paramount consideration for both lenders and firms. The aim of this paper is to test the screening role of loan contracts that consider collateral-interest margins simultaneously.

Design/methodology/approach

This paper presents an empirical analysis that uses a unique data set composed of 323 bank loans granted by 28 banks to SMEs backed by a Spanish Mutual Guarantee Institution.

Findings

The results show that appropriate combinations of collateral and interest rates can distinguish between borrowers with different project success probability: low success probability borrowers finance its projects without collateral and with high interest rates, whereas high success probability borrowers accept loans with real estate collateral and low interest rates.

Practical implications

This screening mechanism reduces credit rationing, thus increasing good projects' access to credit.

Originality/value

This study provides the first empirical evidence on the effectiveness of collateral-interest pairs as a self-selection mechanism.

Details

Management Decision, vol. 52 no. 2
Type: Research Article
ISSN: 0025-1747

Keywords

Article
Publication date: 29 May 2009

David Hirshleifer and Siew Hong Teoh

Sometimes resources are badly employed because of coordination failures. Actions by decision makers that affect the likelihood of such failures are sometimes said to cause…

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Abstract

Purpose

Sometimes resources are badly employed because of coordination failures. Actions by decision makers that affect the likelihood of such failures are sometimes said to cause “systemic risk.” This paper seeks to consider the externality in the choice of ex ante risk management policies by individuals and firms, concerned with private risk, not with their contribution to systemic risk.

Design/methodology/approach

The implications for debates over fair value accounting are considered.

Findings

One consequence is that individuals and firms become overleveraged from a social viewpoint. The recent credit crisis exemplifies the importance of this problem. The US tax system taxes equity more heavily than debt, and therefore exacerbates the bias toward overleveraging. A possible solution is to reduce or eliminate taxation of corporate income and capital gains. Preparedness externalities can also cause firms to become too transparent, and thereby subject to financial runs.

Originality/value

The paper offers insights into systemic risk, coordination failures, and preparedness externalities, focusing on tax and accounting policy.

Details

Journal of Financial Economic Policy, vol. 1 no. 2
Type: Research Article
ISSN: 1757-6385

Keywords

Article
Publication date: 1 October 2004

Krishna S. Vatsa

Households are exposed to a wide array of risks, characterized by a known or unknown probability distribution of events. Disasters are one of these risks at the extreme end…

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Abstract

Households are exposed to a wide array of risks, characterized by a known or unknown probability distribution of events. Disasters are one of these risks at the extreme end. Understanding the nature of these risks is critical to recommending appropriate mitigation measures. A household’s resilience in resisting the negative outcomes of these risky events is indicative of its level of vulnerability. Vulnerability has emerged as the most critical concept in disaster studies, with several attempts at defining, measuring, indexing and modeling it. The paper presents the concept and meanings of risk and vulnerability as they have evolved in different disciplines. Building on these basic concepts, the paper suggests that assets are the key to reducing risk and vulnerability. Households resist and cope with adverse consequences of disasters and other risks through the assets that they can mobilize in face of shocks. Asustainable strategy for disaster reduction must therefore focus on asset‐building. There could be different types of assets, and their selection and application for disaster risk management is necessarily a contextual exercise. The mix of asset‐building strategies could vary from one community to another, depending upon households’ asset profile. The paper addresses the dynamics of assets‐risk interaction, thus focusing on the role of assets in risk management.

Details

International Journal of Sociology and Social Policy, vol. 24 no. 10/11
Type: Research Article
ISSN: 0144-333X

Keywords

Article
Publication date: 1 August 1999

John C. Groth and Richard T. Dye

Focuses on the perceived value of a service by a customer, the perceived quality and value of a service, and the role of expectations, shortfalls, and bonuses in the valuation…

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Abstract

Focuses on the perceived value of a service by a customer, the perceived quality and value of a service, and the role of expectations, shortfalls, and bonuses in the valuation process. Considers on the implications of key relationships in the marketing and delivery of services. Characterizes customer perception of the perceived value of a service and quality of service in multivariate space. This model yields a value vector that summarizes the perceived value of a service and service quality to a customer. The perceived value vector summarizes the aggregate effects of variables of influence on perceived value. Relates service delivery to customer expectations. In this context, illuminates important issues related to exante versus ex post expectations. Introduces the concept of expectations‐delivery variance (EDV). Examines the concept of delivery shortfalls as well as delivery excess, with excess leading to bonus fulfillment. Shortfalls and bonuses have residual effects. Asserts that shortfalls and bonus effects have asymmetric affects in terms of residual influence on future perceptions of customer expectations of service value.

Details

Managing Service Quality: An International Journal, vol. 9 no. 4
Type: Research Article
ISSN: 0960-4529

Keywords

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