Search results
1 – 10 of over 11000
Zhizhen Chen, Frank Hong Liu, Jin Peng, Haofei Zhang and Mingming Zhou
We examine whether loan securitization has an impact on bank efficiency. Using a sample of large US commercial banks from 2002 to 2012, we find that bank loan securitization has a…
Abstract
We examine whether loan securitization has an impact on bank efficiency. Using a sample of large US commercial banks from 2002 to 2012, we find that bank loan securitization has a significant and positive impact on bank efficiency, and this relationship is stronger for banks with higher capital ratios, higher default risk, and lower level of liquidity and diversification. Our results are robust to Heckman self-selection correction and difference-in-difference (DID) analysis. In addition, these results are found mainly in non-mortgage loan securitizations but not in mortgage loan securitizations. Finally, we show that loan sales also have a positive impact on bank efficiency.
Details
Keywords
Daniel Dupuis, Virginia Bodolica and Martin Spraggon
Volume-based liquidity ratios suffer from potential measurement bias due to share restriction and may misrepresent actual liquidity. To address this issue, the authors develop two…
Abstract
Purpose
Volume-based liquidity ratios suffer from potential measurement bias due to share restriction and may misrepresent actual liquidity. To address this issue, the authors develop two modified metrics, the free-float liquidity and the alternative free-float illiquidity ratios. These measures are well suited to estimate liquidity in the presence of trading constraints, as can be found in closely held/state-owned entities, IPOs/SEOs with lockup restrictions, dual-class share structures and family-owned businesses.
Design/methodology/approach
The authors modify the turnover illiquidity ratio, where the number of outstanding shares is scaled by the public free float, and use natural log transformation to normalize free-float liquidity. Our dataset is composed of daily observations for US stocks included in the S&P 500 index over the 2015–2018 period. To test the validity of free-float (il)liquidity ratios, the authors perform a correlation analysis for various liquidity metrics. To examine their empirical efficiency, the authors employ pooled OLS regression models for family firms as a subsample of liquidity-constrained entities, relying on five different identifiers of family-owned businesses.
Findings
The authors’ empirical testing indicates that the proposed free-float (il)liquidity ratios compare favorably with other volume-based methods, such as Amihud's ratio, liquidity ratio and turnover ratio. For the subsample of family organizations as a restricted-share setting, the authors report significant coefficients for our free-float measures across all the family firm identifiers used. In particular, as free-float decreases with progressive family influence, the advanced ratios capture an increase (decrease) in perceived liquidity (illiquidity) that is absent in the other benchmarks.
Originality/value
This study allows the authors to inform the ongoing debate on the management and governance of publicly listed companies with various impediments to trade. Traditional measures understate illiquidity (overstate liquidity) as the fraction of free trading shares is limited by design or circumstances. The authors’ proposed free-float metrics offer informational gains for family leaders to aid in their financing decisions and for non-family outsiders to guide their investment choice. As a constrained free float inhibits price discovery processes, the authors discuss how restricted stock issuers may alleviate the attendant negative effects on governance and information opacity.
Details
Keywords
Suzanna ElMassah, Ola AlSayed and Shereen Mostafa Bacheer
The purpose of this study is to investigate the main factors that affect liquidity risk in the UAE Islamic banks.
Abstract
Purpose
The purpose of this study is to investigate the main factors that affect liquidity risk in the UAE Islamic banks.
Design/methodology/approach
The study examines the annual data of the seven UAE Islamic banks over the period 2008-2014. Random effects panel data model is used to estimate the impact of four bank-specific variables and two macroeconomic ones on the liquidity risk of the UAE Islamic banks via their impact on five alternative liquidity ratios.
Findings
The paper finds that bank size has a negative impact on liquidity risk according to two liquidity ratios only, and an insignificant impact according to the other three. Both capital adequacy and London interbank offered rate have significant negative impacts on liquidity risk for three liquidity ratios, and insignificant impacts on two. The effect of credit risk is negative for all adopted ratios, while that of return on assets is negative for one ratio only. Finally, real GDP has a positive effect on two ratios and an insignificant one on the others.
Research limitations/implications
The study provides insights for policymakers and practitioners to choose appropriate liquidity management procedures. It emphasizes that identifying efficient procedures or policies depends on the liquidity ratio that is used as a proxy of liquidity risk and its definition, in addition to the correlation between the liquidity ratio and liquidity risk. The study also provides some guidance to Islamic banks in the UAE concerning the main factors impacting their liquidity, which can eventually enable them to support their liquidity management policies, in a way that would expand their customer base according to profitability aspects, and not only religious ones.
Originality/value
The paper adds to the relatively limited literature on liquidity risk in Islamic banks. It also is the first study that investigates the determinants of liquidity risk facing Islamic banks in the UAE using five alternative liquidity ratios.
Details
Keywords
This paper aims to empirically examine the relationship between stock liquidity and asset pricing, using a new price impact ratio adjusted for free float as the approximation of…
Abstract
Purpose
This paper aims to empirically examine the relationship between stock liquidity and asset pricing, using a new price impact ratio adjusted for free float as the approximation of liquidity. The free-float-adjusted ratio is free from size bias and encapsulates the impact of trading frequency. It is more comprehensive than alternative price impact ratios because it incorporates the shares available to the public for trading.
Design/methodology/approach
The authors are using univariate and multivariate econometric methods to test the significance of a newly created price impact ratio. The authors are using secondary data and asset pricing models in their analysis. The authors use a data sample of all US listed companies over the period of 1997–2017.
Findings
The authors provide evidence that the free-float-adjusted price impact ratio is superior to all price impact ratios used in the previous academic literature. The authors also discover that their findings are robust to the financial crises between 2007 and 2009.
Originality/value
This is the first comprehensive study on a newly established price impact ratio. The authors show the significance of this ratio and explain why it is superior to all previous price impact ratios, established in prior research.
Details
Keywords
Ali Faruk Acikgoz, Sudi Apak, Nicholas Apergis and Sadi Uzunoglu
This paper aims to focus on the absence of a direct criterion for the ideal level of net working capital (NWC) for which Acikgoz (2014) theoretically demonstrates that this NWC…
Abstract
Purpose
This paper aims to focus on the absence of a direct criterion for the ideal level of net working capital (NWC) for which Acikgoz (2014) theoretically demonstrates that this NWC can be treated in a manner that allows the assessment of repayments. The study presents and discusses a new multiplier (i.e. the afa coefficient), defined as the ratio of cash equivalents ratio to NWC, measured as the percentage of short-term liabilities (Acikgoz, 2014). In other words, the study explores whether NWC could be an indicator of the ratios of corporate short-term bank credit to STL and of bank credit to total assets.
Design/methodology/approach
Sectoral panel regressions are used in the case of Turkey, spanning the period 1996-2013, on data obtained from the Central Bank of Turkey. Through second-generation panel unit root tests for cross-section dependence and panel cointegration methodologies, the results illustrate the statistical significance of the CD statistics, indicating the presence of cross dependence, the presence of non-stationary variables and the presence of a long-run association for the variables under study.
Findings
The findings document that a transformed variable of NWC is more substantive than the explicatory quality of the current ratio and may potentially be used in the prediction of bank credit in corporate liabilities.
Originality/value
The afa coefficient shows the ratio of liquid assets to NWC as a percentage of STL. The results illustrate that this coefficient plays a significant role for corporate bank credit usage in the case of the Turkish sectoral analysis.
Details
Keywords
While previous literature has emphasized the causal relationship from liquidity to capital, the impact of interbank network characteristics on this relationship remains unclear…
Abstract
Purpose
While previous literature has emphasized the causal relationship from liquidity to capital, the impact of interbank network characteristics on this relationship remains unclear. By applying the interbank network simulation, this paper aims to examine whether the causal relationship between capital and liquidity is influenced by bank positions in the interbank network.
Design/methodology/approach
Using the sample of 506 commercial banks established in 28 European countries from 2001 to 2013, the author adopts the generalized method of moments simultaneous equations approach to investigate whether interbank network characteristics influence the causal relationship between bank capital and liquidity.
Findings
Drawing on a sample of commercial banks from 28 European countries, this study suggests that the interconnectedness of banks within interbank loan and deposit networks shapes their decisions to establish higher or lower regulatory capital ratios in the face of increased illiquidity. These findings support the implementation of minimum liquidity ratios alongside capital ratios, as advocated by the Basel Committee on Banking Regulation and Supervision. In addition, the paper underscores the importance of regulatory authorities considering the network characteristics of banks in their oversight and decision-making processes.
Originality/value
This paper makes a valuable contribution to the current body of research by examining the influence of interbank network characteristics on the relationship between a bank’s capital and liquidity. The findings provide insights that add to the ongoing discourse on regulatory frameworks and emphasize the necessity of customized approaches that consider the varied interbank network positions of banks.
Details
Keywords
Ahmad Sahyouni, Mohammad A.A. Zaid and Mohamed Adib
The purpose of this paper is to investigate how much liquidity banks create and how liquidity creation changed over time in the MENA countries and to examine the soundness of…
Abstract
Purpose
The purpose of this paper is to investigate how much liquidity banks create and how liquidity creation changed over time in the MENA countries and to examine the soundness of banks in these countries based on the CAME rating system, in addition to investigating the relationship between CAME ratios and liquidity creation of these banks.
Design/methodology/approach
The study regresses the CAME ratios together with other control variables to model liquidity creation. The robustness of the results is evaluated by using a different measure of liquidity creation and by excluding the observations of the Islamic banks.
Findings
The results show that the CAME rating system, as an indicator of bank soundness, is negatively related to bank liquidity creation. Specifically, capital adequacy, management efficiency and earning ability ratios affect the on-balance sheet components of liquidity creation, while asset quality ratio affects its off-balance sheet component.
Practical implications
The paper offers insights to regulators and banks managers in terms of better understanding of the negative relationship between CAME rating system and bank liquidity creation.
Originality/value
This paper sheds more light on the relationship between bank soundness and liquidity creation by using the ratios of the CAMEL rating system as an indicator of bank strength and soundness.
Details
Keywords
Muhammed Habib Dolgun, Adam Ng and Abbas Mirakhor
The purpose of this paper is to highlight the effects of liquidity regulations on Islamic banking using Turkey as a case study. It recommends an alternative mechanism using…
Abstract
Purpose
The purpose of this paper is to highlight the effects of liquidity regulations on Islamic banking using Turkey as a case study. It recommends an alternative mechanism using capital market standards for liquidity requirement of Islamic banks to mitigate certain risks.
Design/methodology/approach
The paper evaluates the correlation between cash and profit and between liquidity coverage ratio and capital adequacy ratio of participating banks in Turkey.
Findings
Islamic banks hold higher cash than they should. The paper suggests a maximum liquidity ratio for Islamic banks. Applying a cap to the liquidity coverage ratio will impose discipline on Islamic banks to manage their assets appropriately as well as to encourage their financial intermediation to the real sector. In addition, the authors argue that even if the cash outflows from investment account on the right side of Islamic banks’ balance sheets are included in the short-term projection, they should not be included in the denominator of the liquidity coverage ratio.
Practical implications
The current Basel requirements and Islamic Financial Services Board standards are disincentives to Islamic banks to provide risk-sharing or partnership-based investments and services to their customers and depositors. Effective legal and regulatory framework and supervisory oversight need to take into account the difference between the risk profile of a typical Islamic bank and a conventional bank.
Originality/value
Although it is well accepted that without adequate regulatory involvement it would not be possible to control and mitigate the risks related to Islamic banking financial intermediation, there should be a balance between the growth and stability of the industry. The regulatory involvement that satisfies this balance would be welcome.
Details
Keywords
This study aims to examine the effect of Saudi bank’s financial stability on risk management.
Abstract
Purpose
This study aims to examine the effect of Saudi bank’s financial stability on risk management.
Design/methodology/approach
Different ordinary least square models have been used to study the significant effect of banks’ financial stability indicators on different types of risks in Saudi banks. Financial statements were collected of all Saudi banks (12 banks) from 2011 to 2014 from TADAWL website.
Findings
The results indicate a negative and significant effect of capital adequacy ratio on credit risk. Also, there is a significant and positive effect of leverage ratio on credit risk. Moreover, the results indicate negative and significant effect of provisions, leverage, ratio of loans to deposits and bank size on liquidity risk. Finally, results indicate a positive and significant effect of capital adequacy, provisions, leverage and asset utilization ratio on operational risk and indicate a negative and significant effect of loan-to-deposits ratio on operational risk. A robustness check was used to confirm the results. No differences between small and large Saudi banks was found. All banks are committed to apply Basel accord and Saudi Arabian Monetary Agency (SAMA) regulations. But there is a significant difference in applying SAMA toolkits regulations between 2011 and 2014. The 2014 results reflect very high degree of financial stability in Saudi banks when compared with that of 2011, also greater ability to mitigate risk exposure using different types of macroprudential toolkits stated by SAMA.
Research limitations/implications
The study is limited to Saudi Banks from 2011 to 2014.
Originality/value
This is the first paper to use the macroprudential toolkits, suggested by SAMA as financial stability measurements, to examine their effect on different types of risks in Saudi banks. SAMA suggested this group of toolkits to comply with Basel III new regulations and to minimize the degree of risk exposure of Saudi banks.
Details