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The paper empirically investigates the link between banking market structure and funding liquidity risk.
Abstract
Purpose
The paper empirically investigates the link between banking market structure and funding liquidity risk.
Design/methodology/approach
With a panel of Vietnamese commercial banks from 2007 to 2021, the system generalized method of moments (GMM) estimator is applied as the primary regression method, while the random-effect model and the corrected least square dummy variable (LSDVC) technique are also considered in robustness checks.
Findings
Competition may increase banks' funding liquidity risk. This finding holds for competition measures derived from the Boone index and concentration ratios but not in the case of the Lerner index as a proxy for market power. Further results indicate that the funding liquidity risk of banks that are larger and have better performance (less credit risk and higher return) tends to be less affected by competition. Besides, the overall impact of bank competition on funding liquidity risk is amplified by the financial crisis and the COVID-19 pandemic.
Originality/value
The study extends the empirical literature by exploring the relationship between bank competition and funding liquidity risk. Additionally, the paper also studies how the impact of bank competition on funding liquidity risk depends on the characteristics of the banking sector and the macroeconomic conditions of the economy, including the moderating effect of the COVID-19 pandemic.
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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.
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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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Raymond K. Dziwornu, Eric B. Yiadom and Sampson B. Narteh-yoe
The cost of agricultural loans is a major constraint to the growth of the agriculture sector. This paper examines agricultural loan pricing by banks in Ghana using panel data…
Abstract
Purpose
The cost of agricultural loans is a major constraint to the growth of the agriculture sector. This paper examines agricultural loan pricing by banks in Ghana using panel data analysis.
Design/methodology/approach
Data were obtained from audited financial reports of 15 agricultural loan lending banks from 2010 to 2017. The study applies the random-effect model and the fixed-effect model in the analysis and uses the system generalized system method of moment to check the robustness of the results from the baseline models.
Findings
The study found that agricultural loan pricing by banks is significantly influenced by risk premium, cost of funds, loan impairment, agricultural growth rate and food inflation. Banks should leverage emerging technologies to de-risk agriculture loan pricing to allay the fear of default. Farmers should look for long-term and relatively cheaper funds to support agricultural loans. Increasing credit to the agricultural sector could increase output, thereby reducing food inflation uncertainty for competitive pricing of agricultural loans.
Originality/value
Agriculture employs about 52% of Ghana's labor force, contributing about 20% to GDP. But it is “under” financed. This study leads the way in unraveling the factors accounting for the high prices of agricultural loans in Ghana. This study further contributes to policy development toward increasing credit to the agricultural sector.
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Francesco Baldi and Neophytos Lambertides
This study investigates the relation between ESG-driven investment strategies and the performance of infrastructure funds. More specifically, this study examines the impact of the…
Abstract
Purpose
This study investigates the relation between ESG-driven investment strategies and the performance of infrastructure funds. More specifically, this study examines the impact of the different dimensions – environmental (E), social (S) and governance (G) – of the ESG profile of infrastructure funds on their performance.
Design/methodology/approach
To study the risk-return properties of infrastructure funds and the relationship with their ESG profiles, an econometric analysis is conducted, based on a sample of 180 listed, ESG-oriented infrastructure funds identified through Refinitiv Eikon.
Findings
The results show that infrastructure funds with more solid environmental investment policies experience a lower performance, while those with a stronger social orientation yield a superior performance. Governance-related investment policies seem trivial in determining the performance of these funds. Further analysis shows that ESG controversies have a negative impact on infrastructure funds' performance, whereas Emissions and Resource Use scores, both proxying for different elements under the environmental pillar, have opposite signs. Finally, the Community score has a positive impact on funds' performance consistent with the positive impact of the social pillar score. The study also provides a number of sub-sample analyses to shed light on the conditions under which each pillar has significant impact on funds’ performance.
Practical implications
First, infrastructure funds should choose the composition of their portfolio holdings in a way that the total return is not penalized by the prevalence of the tricky E aspects (compliance with environmental regulations) over the main benefits of the S dimension. Second, fund managers need to bet on infrastructures with an expected impact on the social pillar dimension such as those aimed at promoting the wealth of the local communities (e.g. hospitals, schools). Third, to strengthen the fund's social dimension, fund managers must increase the dollar amount of the assets under management to count on a higher firepower.
Originality/value
This study makes three contributions to literature. First, the ESG profiles of the infrastructure funds operating both at local and global level and their relationship with annual performance are studied. Second, the different dimensions of the ESG profile of infrastructure funds are investigated by measuring their impact on performance. Third, the study sheds light on some detailed but relevant aspects of this phenomenon by analyzing the breakdown of the ESG profile of infrastructure funds into four sustainability sub-scores capturing their efforts to reduce CO2 emissions, the use of polluting materials and to influence local communities as well their exposure to the risk of litigation due to the occurrence of ESG controversies. This study addresses the extent to which the adoption of ESG investment policies by the infrastructure funds have an impact on their performances.
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Yunlong Duan, Yan Liu, Yilin Chen, Weiqi Guo and Lisheng Yang
This study aims to focus on the impact of multi-level knowledge sharing between and within organizations on the risk control of rural inclusive finance. The paper presents…
Abstract
Purpose
This study aims to focus on the impact of multi-level knowledge sharing between and within organizations on the risk control of rural inclusive finance. The paper presents a synergistic risk control system integrating external and internal factors for rural inclusive finance by constructing different knowledge-sharing platforms in an environment, which is full of many uncertainties.
Design/methodology/approach
This study is based on survey methods. To achieve the research objectives, the authors adopt a single case study approach. For data collection, the authors apply a wide variety of methods such as semi-structured interviews, field visits, second-hand databases and official websites.
Findings
The results emphasize that using multi-level knowledge sharing such as the inter- and intra-organizational level, can facilitate the risk control of rural inclusive finance during the post-COVID-19 era. Furthermore, it is also noted that achieving knowledge sharing at different levels by building diverse knowledge-sharing platforms can promote the risk control of rural inclusive finance from the individual-organization level to the chain level of multi-organization collaboration, which contributes to the formation of symbiotic risk control ecology.
Research limitations/implications
The authors have formed the “Chinese wisdom” to deal with inclusive financial risks and to promote in-depth development in relation to the “last mile” practice of inclusive finance, which means the final and the most important phase of a project. The conclusions contribute to enriching the outcomes regarding the risk control of rural inclusive finance, provide experiences to its sustainable development and offer a reference to other countries with their risk control of rural inclusive finance.
Originality/value
Drawing on the knowledge-sharing approach, this study creatively resolves the persistent problems in the risk control of rural inclusive finance, which forms a powerful supplement to the extant literature. Meanwhile, the paper combines the two contextual factors of the post-COVID-19 era and emerging economies, which can be deemed as a novel attempt.
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Sobhesh Kumar Agarwalla and Ajay Pandey
This case describes the growth of ReNew Power during its first decade of operation. Sumant Sinha, a first-generation entrepreneur and former banker, founded the company, which…
Abstract
This case describes the growth of ReNew Power during its first decade of operation. Sumant Sinha, a first-generation entrepreneur and former banker, founded the company, which grew from a modest generator-cum-developer of wind energy-based electricity to one of India's largest companies in the renewable energy sector. With the entry of large, well-funded players such as Tata Power and Adani Green into the Indian renewable sector by the end of 2020, Sinha had to make a strategic decision: should ReNew continue to organically scale up its presence in an increasingly competitive yet expanding Indian renewable energy sector, should it diversify geographically, or should it pursue emerging opportunities for vertical or horizontal integration within the sector? The case provides an opportunity to discuss how alternative business models and competitive scenarios may facilitate or inhibit the growth of a player in the renewable energy sector.
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Mouna Ben Rejeb and Nozha Merzki
This study aims to investigate the effect of income and asset diversification on earnings management using discretionary loan loss provisions (LLP) in banks, and the role of risk…
Abstract
Purpose
This study aims to investigate the effect of income and asset diversification on earnings management using discretionary loan loss provisions (LLP) in banks, and the role of risk level in mediating this effect.
Design/methodology/approach
A sample of banks operating in Middle East and North Africa countries was used to test the mediation model of Baron and Kenny (1986) with different measures of diversification and risk.
Findings
The results show that bank income and asset diversification have unique and combined effects on earnings management. The results also support the idea that a risk-mediating effect contributes to explaining this relationship among banks. Specifically, bank diversification strategies positively affect LLP-based earnings management by increasing bank risk. This result is relevant for conventional banks. However, only a direct and positive effect of diversification strategies on LLP-based earnings management can be observed in Islamic banks, and the indirect effect is not supported.
Originality/value
This study extends previous research by examining the unique and combined effects of income and asset diversification strategies on earnings management in the banking sector. Specifically, it provides new evidence that diversification strategies increase LLP-based earnings management, both directly and indirectly, through bank risk.
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This paper evaluates the risk-adjusted returns, selectivity, market timing skills and persistence of the performance of Nigerian pension funds.
Abstract
Purpose
This paper evaluates the risk-adjusted returns, selectivity, market timing skills and persistence of the performance of Nigerian pension funds.
Design/methodology/approach
Annual return data of 23 pension funds that operated in Nigeria between 2018 and 2022 were obtained from the National Pension Commission (PenCom). Risk-adjusted return was appraised using the Treynor ratio, Sharpe ratio and Jensen alpha, while the Treynor–Mazuy and Henriksson–Merton multiple regression models were applied to decompose selective and timing skills. Performance persistence was assessed using the contingency table and rank correlation models.
Findings
Evidence shows that pension funds deliver excess risk-adjusted returns and exhibit selective skills. However, the evidence does not support the presence of timing skills, and there is overwhelming evidence that good (bad) performance does not repeat.
Practical implications
An evaluation of the investment performance of pension funds is crucial for ensuring the financial stability of retirees, maintaining economic stability and making informed investment decisions. It serves the interests of pensioners, pension fund managers, regulators and the broader economy. Our evidence that pension funds generate positive excess returns is a departure from most of the literature on managed funds. We recommend that more Nigerians should leverage the pension fund industry to grow their wealth and prepare for retirement.
Originality/value
This study, to our knowledge, is the first to appraise all the key facets of the investment performance of pension funds in the Nigerian context.
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Ioannis Tampakoudis, Nikolaos Kiosses and Konstantinos Petridis
The purpose of this study is to evaluate the performance of mutual funds during the COVID-19 pandemic with environmental, social and governance (ESG) criteria. The main research…
Abstract
Purpose
The purpose of this study is to evaluate the performance of mutual funds during the COVID-19 pandemic with environmental, social and governance (ESG) criteria. The main research question is whether mutual fund performance differs with respect to the level of the mutual fund’s ESG score.
Design/methodology/approach
The data set contains global fund data, and mutual fund performance is analyzed using two types of data envelopment analysis (DEA) models: the DEA portfolio index (DPEI) and the range direction measure (RDM) DEA. Propensity score matching and logistic regression are also applied.
Findings
The results reveal that: nonequity mutual funds present significantly higher performance compared to the performance of equity mutual funds; mutual funds with high ESG scores are associated with significantly higher performance compared to those with low to medium ESG scores; funds with high ESG scores experience higher performance irrespective of their type; and efficiency scores derived from the RDM DEA are significantly higher than those derived from the DPEI model.
Research limitations/implications
Investors, fund managers and market participants can benefit from the findings of this study and improve their investment decision-making process, including more sustainable funds in their portfolios. Regulators and policymakers should further promote or even require the inclusion of more sustainable investments in the financial products offered by institutional investors. The main limitation of the study is related to data availability regarding the ESG score of mutual funds.
Originality/value
To the best of the authors’ knowledge, this is the first study that provides robust evidence in support of a positive association between ESG scores and mutual fund performance during the pandemic-induced crisis applying a DEA methodology.
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