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Article
Publication date: 1 January 2012

Dieter Kaiser and Florian Haberfelner

The purpose of this paper is to explore how hedge fund database biases developed during the 2007‐2009 financial crisis.

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Abstract

Purpose

The purpose of this paper is to explore how hedge fund database biases developed during the 2007‐2009 financial crisis.

Design/methodology/approach

The sample consists of 8,935 hedge funds from the Lipper TASS Hedge Fund Database for the January 2002‐September 2010 time period. The theoretical foundation of this paper draws from Fung and Hsieh who argue that time series of funds of hedge funds should be less prone to some of the documented database biases. The paper uses a sampling technique to create hedge fund portfolios, and then compares them using fund of fund data.

Findings

The paper finds empirical evidence that fund of hedge fund data is less biased than single hedge fund data, and that the impact of the survivorship and backfilling biases has increased since the financial crisis. It also finds that the attrition rate for hedge funds has nearly doubled since the financial crisis, and that an elevated attrition rate has a negative impact on the quality and representativeness of hedge fund data due to the liquidation bias. The liquidation bias increased strongly in the aftermath of the financial crisis. It also fluctuates over time, and it can account for an overestimate of performance of over 10 percent p.a.

Originality/value

Given this increase and the volatile nature of hedge fund biases, we believe investors (for benchmarking) and academics (for empirical studies) should consider refraining from using single hedge fund index data.

Article
Publication date: 3 August 2023

James Routledge

The objective of this study is to investigate the relationship between trade credit supply and financial distress outcomes, considering the role that trade credit plays as a…

Abstract

Purpose

The objective of this study is to investigate the relationship between trade credit supply and financial distress outcomes, considering the role that trade credit plays as a substantial source of liquidity for distressed companies. Specifically, it examines whether there is an association between trade credit supply and the outcomes experienced by companies that undergo the voluntary administration (VA) insolvency procedure under Australian corporate law.

Design/methodology/approach

The study examines a sample of companies that were listed on the Australian Securities Exchange and entered VA between 2002 and 2019. Ordered logistic regression is used to determine the relation between trade credit and VA outcomes. The VA outcomes considered are as follows: (1) company liquidation, (2) orderly dissolution through an agreement with creditors, or (3) an agreement with creditors for reorganization of all or part of the company's business.

Findings

The findings show that trade creditors' willingness to supply credit is influenced by their rational expectations about the future prospects of financially distressed customers. Higher levels of trade credit and an increase in trade credit supply prior to VA are associated with a greater probability of achieving a reorganization versus a liquidation or dissolution outcome.

Originality/value

There is no apparent prior study investigating the connection between trade credit supply and outcomes for distressed companies entering insolvency administration. Therefore, this study provides novel evidence on the role of trade credit in the context of financial distress. Understanding the relationship between trade credit supply and outcomes is particularly significant considering that many jurisdictions offer distressed companies the opportunity to pursue reorganization under their insolvency laws. Examining financial distress and trade credit in the Australian creditor-friendly context expands on existing research. Prior research has predominantly relied on data from the United States, which has debtor-friendly bankruptcy law. Consequently, these studies may lack generalizability to jurisdictions with creditor-friendly law such as Australia.

Details

Journal of Accounting Literature, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0737-4607

Keywords

Article
Publication date: 11 March 2022

Ba Hung Nguyen, Nhat Bao Quyen Pham and Thi Hong Ha Do

As small and medium-size enterprises (SMEs) rely on board heterogeneity to raise capital and establish credit relationships with suppliers, it is crucial to investigate the board…

Abstract

Purpose

As small and medium-size enterprises (SMEs) rely on board heterogeneity to raise capital and establish credit relationships with suppliers, it is crucial to investigate the board heterogeneity effect on their survival. In this study, the first research objective is to provide further insights on the discriminatory power of survival approaches, specifically on semiparametric approaches in survival analysis that take into consideration both fixed and time-varying covariates. The second objective is to examine the relationship between board size and SME liquidation by using resource-based theories that focus on measuring board heterogeneity through board size.

Design/methodology/approach

This paper uses survival approaches for modelling SMEs survival by examining the survival of more than 68,000 SMEs in the UK covering the before, onset and post 2008 crisis periods and with firms’ demographic characteristics and financial indicators. Survival analysis is effective to examine multiple causes of default/failure and how do particular circumstances or characteristics increase or decrease the probability of survival. Survival analysis brings more advantages than linear-based regression approaches by effectively handling the censoring of observations.

Findings

Motivated by resource-based theories, the authors find that the likelihood of a firm being liquidated robustly increases with a reduction in its board heterogeneity measured through board size. This finding is held under non-parametric, parametric, and semiparametric approaches using survival analysis. The research shows better causal explanation and discriminatory power on using the semiparametric-based survival analysis approach considering both fixed and time-varying covariates.

Practical implications

This study demonstrates the better performance and causal explanation of the survival model using time-varying covariates compared with those using fixed covariates. In addition, the authors delve into board heterogeneity, measuring through the board size to investigate how the number of board directors affects the firm liquidation, it is also a factor worth considering when a small and medium firm is forming its board.

Originality/value

This research investigates the board heterogeneity effect on firm survival using survival analysis approaches. The authors contribute to the knowledge on board heterogeneity of SMEs. Specifically, the size of more than three directors could help reduce SMEs liquidation risk. This result gives a recommendation to firms or start-ups when forming their director board. This research also provides further insights on the applicability of survival models with unique UK SMEs data covering the before, onset and post 2008 crisis periods.

Details

Studies in Economics and Finance, vol. 40 no. 1
Type: Research Article
ISSN: 1086-7376

Keywords

Open Access
Article
Publication date: 19 February 2024

Mamekwa Katlego Kekana, Marius Pretorius and Nicole Varela Aguiar De Abreu

Business rescue, as a mechanism to aid financially distressed companies in South Africa, has received considerable academic and practical recognition. However, the business rescue…

Abstract

Purpose

Business rescue, as a mechanism to aid financially distressed companies in South Africa, has received considerable academic and practical recognition. However, the business rescue plan is an overlooked and, perhaps, underdeveloped aspect of the regime. For stakeholders, this is the ultimate decision-making document. Creditors are the most influential stakeholders in business rescue proceedings owing to their voting rights. For creditors to make informed decisions and exercise their votes meaningfully, the business rescue plan should be transparent and adequately disclose relevant and reliable information. This study aims to identify creditors’ primary information needs to enhance the sufficiency and decision-usefulness of business rescue plans, not only to entice the vote of creditors but to enforce accountability from practitioners.

Design/methodology/approach

Using a qualitative research design, semi-structured interviews were conducted with 14 executives from 10 South African financial institutions.

Findings

The findings reveal that comprehensive disclosure of financial, commercial and legal information in business rescue plans was a critical antecedent for stakeholder decision-making. Additionally, leadership and social impact information were influential determinants. This study advances academic knowledge and, for practitioners, adds value to the development of business rescue plans. This can enhance creditors' confidence in supporting the rescue effort and approving the plan.

Practical implications

This study advances academic knowledge and, for practitioners, adds value to the development of business rescue plans. This can enhance creditors' confidence in supporting the rescue effort and approving the plan.

Originality/value

The originality of this article lies in its investigation of how creditors assess the information in BR plans as a precursor to supporting the company’s reorganisation in a creditor-friendly business rescue system such as South Africa. This study provides novel insights into the decision-making process, particularly how creditors assess BR plans, address information asymmetry and vote on the plan.

Details

International Journal of Law and Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1754-243X

Keywords

Article
Publication date: 15 February 2013

Thomas Heidorn, Dieter Kaiser and Daniel Lucke

Academic research has shown that diversification today may not only include stocks and bonds but also alternative investments like hedge funds. However, practical and effective…

Abstract

Purpose

Academic research has shown that diversification today may not only include stocks and bonds but also alternative investments like hedge funds. However, practical and effective methods to identify the hedge fund styles that really enhance the risk return characteristics of a traditional portfolio as well as optimal allocation sizes are not available. The aim of the paper is to try to close this gap by proposing a portfolio optimization approach based upon the traditional market exposures of the different hedge fund strategies.

Design/methodology/approach

For this purpose, the paper first measures the bull and bear market betas of the main hedge fund strategies (equity market neutral, event driven, global macro, relative value, and managed futures). Based on the strategy characteristics, the authors then develop a systematic framework that calculates what percentage of each basic asset should be substituted for by hedge fund strategies to achieve the maximum results. The paper uses hedge fund index data from Hedge Fund Research and Barclay Hedge for the January 1999‐April 2011 sample period.

Findings

The empirical results show that this approach leads to an improvement in the annualized return of the optimized portfolio.

Originality/value

The paper adds to the existing literature by showing that it is possible to substitute traditional assets with hedge fund indices based on their exposures (beta) in varying market environments as a way to optimize the overall portfolio.

Details

Review of Accounting and Finance, vol. 12 no. 1
Type: Research Article
ISSN: 1475-7702

Keywords

Article
Publication date: 5 September 2020

Shakti Deb and Indrajit Dube

This paper aims to revisit the Indian experience on corporate bankruptcy law to answer “why Indian corporate insolvency law structured differently from a manager-driven…

Abstract

Purpose

This paper aims to revisit the Indian experience on corporate bankruptcy law to answer “why Indian corporate insolvency law structured differently from a manager-driven (pre-Insolvency Code) to manager-displacing model (post-Insolvency Code)?”

Design/methodology/approach

This paper is qualitative in nature. The paper analyses the prevailing theoretical wisdom in corporate insolvency law in India and examines the practices of Indian bankruptcy regime.

Findings

The authors argued, considering the corporate ownership composition, the Insolvency and Bankruptcy Code 2016 will not accomplish the intended objective (i.e. the “creditor primacy”). The findings refute with the evolutionary theory, i.e. debt and equity both will tend towards dispersion in outsider system of governance.

Originality/value

This paper put forward the imprint that Indian corporate insolvency regime is manager-displacing under Law on Books and manager-driven under Law on Practice.

Details

International Journal of Law and Management, vol. 63 no. 1
Type: Research Article
ISSN: 1754-243X

Keywords

Article
Publication date: 14 May 2018

Hamiisi Junior Nsubuga

This paper aims to highlight how an interpretative approach to law as posited by Dworkin may be used to remedy the tension between employment protection and corporate rescue laws.

Abstract

Purpose

This paper aims to highlight how an interpretative approach to law as posited by Dworkin may be used to remedy the tension between employment protection and corporate rescue laws.

Design/methodology/approach

This paper adopts a doctrinal and theoretical approach to law.

Findings

The tension between corporate rescue and employment protection laws affects both employees’ and business owners’ policy objectives on corporate insolvency. The theoretical perspectives of both the traditionalists and proceduralists have so far failed to provide a clear approach on how this tension may be balanced or remedied. This paper proposes that this tension may be remedied through interpretation, that is, by adopting Dworkin’s Interpretative Approach to Law.

Originality/value

Most researchers and academics have written extensively about the tension between corporate rescue and employment protection, but this paper is the first of its kind to propose a remedy to this tension through interpretation.

Details

International Journal of Law and Management, vol. 60 no. 3
Type: Research Article
ISSN: 1754-243X

Keywords

Book part
Publication date: 29 December 2016

Roland Füss, Dieter G. Kaiser and Felix Schindler

This chapter aims to determine whether diversification benefits accrue from adding emerging market hedge funds (EMHFs) to an emerging market bond/equity portfolio, and…

Abstract

This chapter aims to determine whether diversification benefits accrue from adding emerging market hedge funds (EMHFs) to an emerging market bond/equity portfolio, and subsequently whether the type of exposure hedge funds provide is justified by their fees. We use multivariate cointegration analysis to show that the advantages of adding hedge funds to balanced portfolios are limited for the three regions of Asia, Eastern Europe, and Latin America, as well as for the entire global emerging market universe. In summary, we find that emerging market hedge funds are generally redundant for diversifying long-only emerging market investment portfolios with long-term investment horizons. This result also holds when we extend our sample by the global financial crisis in 2008 and 2009 and allow for structural breaks according to the Gregory-Hansen (1996) test. Hence, even during the global financial crisis in 2008 and 2009, when risk diversification was most needed, long-term comovements between hedge funds and traditional assets is, with the exception of the Eastern European region, not disrupted. Because EMHF returns are heavily influenced by the emerging market equity and bond markets, we conclude that the “alpha fees” charged by EMHFs may not always be appropriate for the three main regions under consideration. This also holds, however, to a lesser extent, for a global diversification among hedge funds and traditional assets in emerging markets.

Article
Publication date: 23 March 2020

Madhvi Sethi and Dipali Krishnakumar

Non-performing assets (NPAs) have been a cause of concern for the banking sector across the world and have invited a lot research interest, especially for emerging economies. In…

Abstract

Purpose

Non-performing assets (NPAs) have been a cause of concern for the banking sector across the world and have invited a lot research interest, especially for emerging economies. In India, the NPAs grew many folds and reached alarming levels in 2013. The available mechanisms, such as Corporate Debt Restructuring Scheme, were not adequate to address this issue. The Central Reserve Bank of India with the Government of India introduced various guidelines, schemes and regulations like framework for revitalizing distressed assets to tackle NPAs during the period 2013-2017. Taking the case of India, the purpose of this paper is to examine policy initiatives and analyse the impact of regulatory shocks on the equity market returns and the systematic risk of individual banking stocks using an extended version of the market model.

Design/methodology/approach

In this study, the authors design the experiment to explore the reaction of banking stocks to the various regulatory measures and also measure the change in systematic risk for these stocks as a result of the regulatory changes. Following the approach suggested by Soraokina and Thornton (2015), the authors use the extended market model to test the reaction of banking company stocks to the regulatory measures.

Findings

The study finds that banking stocks did not earn significant abnormal returns on the announcement of these measures. However, the systematic risk of the banking index reduced significantly on the introduction of regulatory measures, and this risk reduction has been primarily in the stocks of private sector banks.

Research limitations/implications

This paper provides insights on the equity market's short-term reaction to the reform initiatives introduced by the government. The scope of the paper is with respect to one emerging economy, India, which underwent a series of regulatory reforms to tackle the banking NPA problem.

Originality/value

The paper fills an important research gap where the impact of schemes and regulations is captured for an emerging economy like India. It tries to bring forth the importance of these reforms and how an investor perceives the same. This paper tests for changes in systematic risk as measured by market beta as well as measures cumulative abnormal returns associated with important events in the process of regulatory reforms happening in India from 2013 to 2017.

Details

Journal of Financial Regulation and Compliance, vol. 28 no. 3
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 5 January 2015

P. K. Gupta and Sanjeev Gupta

The purpose of this paper is to examine the nature and perception of corporate frauds in India and their consequences in the business and economic systems, and it highlights the…

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Abstract

Purpose

The purpose of this paper is to examine the nature and perception of corporate frauds in India and their consequences in the business and economic systems, and it highlights the emerging issues so that existing legal and regulatory obligations can be redefined and structured.

Design/methodology/approach

An exploratory research was conducted through a combined mode of literature review; case studies; structured questionnaires from 346 sample companies; and 43 interviews with the corporate professionals, management, investors, government offices and authorities having wide experience.

Findings

It was found that the regulatory system is weak, and there is dire need to redefine the role of auditors. Coordination among different regulatory authorities is poor, and after every scam, there is a blame game. Reporting of fraud and publication of fraud prevention policy are missing. Banks and financial institutions are ineffective on due diligence, and there is a lack of professionalism on the board and other executive levels in companies.

Research limitations/implications

This study assumes that fraud could be mitigated by proactive and conscious action by auditors, and corporate executives are willing to avoid perpetrating financial fraud despite pressures from investors, government securities regulators and exogenous market fluctuations. The authors relied on the honesty of the respondents during the sample collection and recorded semi-structured interviews. A minimum level of five years’ work experience relative to preventing, detecting or investigating fraud has been considered a valid determinant in selecting the purposive sample.

Practical implications

The study suggests mandatory publication of fraud prevention policy; constitution of special purpose corporate offence wing; recognition to companies for improved corporate governance; true adoption of International Financial Reporting Standards; due diligence by banks and financial institutions; compulsory appointment of professionals by shareholders and fixation of responsibility on independent professionals; intellectualisation of audit committee; and more powers to the regulators, especially Securities and Exchange Board of India.

Social implications

Prevention of corporate frauds reduces anxiety, improves corporate image and builds up confidence of the investors, which is essential for resource channelling in financial markets.

Originality/value

The research work is based on a thorough analysis of regulatory framework and fraud case studies and primary data collected from companies, banks and other government and developmental institutions.

Details

Journal of Financial Crime, vol. 22 no. 1
Type: Research Article
ISSN: 1359-0790

Keywords

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