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Book part
Publication date: 23 September 2014

Glenn Growe, Marinus DeBruine, John Y. Lee and José F. Tudón Maldonado

This paper examines the profitability and performance measurement of U.S. regional banks during the period 1994–2011, using the GMM estimator technique. Our study extends prior…

Abstract

Purpose

This paper examines the profitability and performance measurement of U.S. regional banks during the period 1994–2011, using the GMM estimator technique. Our study extends prior research by including several factors not previously considered using U.S. data.

Approach

We use bank-specific, industry-specific, and macroeconomic determinants of profitability contemporaneous with our performance indicators. We follow the accounting fundamental analysis path in explaining the bank performance.

Findings

Among the performance measures, the efficiency ratio and provisions for credit losses are negatively and equity scaled by assets is positively related to profitability. However, these relationships either reverse (efficiency ratio and provisions for credit losses) or become insignificant (equity scaled by assets) when the target becomes change in profitability. The level of nonperforming assets is negatively related to profitability across all measures of profitability used. Macroeconomic variables are largely unrelated to profitability during the year they are measured. However, they have a significant relationship with earnings change measures, suggesting they have a lagged effect on profitability. The slope of the yield curve is especially strong in this regard.

Originality

We use our determinants to model changes in bank profitability one year ahead, in addition to including several factors not previously considered, using the predictive focus of the fundamental analysis research.

Book part
Publication date: 17 July 2015

John Y. Lee, Glenn Growe, Marinus DeBruine and Inkyung Cha

This paper examines how the determinants of bank performance and profitability were affected by the recent systemic banking crisis. We explore the contemporaneous determinants of…

Abstract

Purpose

This paper examines how the determinants of bank performance and profitability were affected by the recent systemic banking crisis. We explore the contemporaneous determinants of U.S. regional banks’ performance and profitability before, during, and after the crisis years.

Methodology/approach

We analyze the determinants of three measures of profitability: return on assets, return on equity, and net interest margins.

Findings

We found evidence of lowered bank profitability, credit quality, and scale of lending activities well after the defined crisis period. This coincides with historical evidence that downturns associated with a financial crisis are more severe than downturns due to short-run fluctuations in the business cycle. Banks responded to the crisis by increasing their equity and liquidity levels.

Originality/value

This paper is the first to compare the determinants of bank profitability during the precrisis, crisis, and postcrisis periods. Our study extends previous work by using data from U.S. banks, adding coverage of the years since the banking crisis ended, and considering profitability determinants not previously explored in studies on the effects of the crisis.

Details

Advances in Management Accounting
Type: Book
ISBN: 978-1-78441-650-8

Keywords

Open Access
Article
Publication date: 2 August 2021

Anju Goswami

This study aims to capture the “persistence effect” of credit risk in Indian banking industry using the bank-level data spanning over the period of 19 years from 1998/1999 to…

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Abstract

Purpose

This study aims to capture the “persistence effect” of credit risk in Indian banking industry using the bank-level data spanning over the period of 19 years from 1998/1999 to 2016/17. Alongside, the study explored how the bank-specific, industry-specific, macroeconomic variables alongside regulatory reforms, ownership changes and financial crisis affect the bank's asset quality in India.

Design/methodology/approach

Using two-step system generalized method of moment (GMM) approach, the study derives key factors that affect the bank's asset quality in India.

Findings

The empirical results confirm the time persistence of credit risk among Indian banks during study period. This reflects that bank defaults are expected to increase in the current year, if it had increased past year due to time lag involved in the process of recovery of past dues. Further, higher profitability, better managerial efficiency, more diversified income from nontraditional activities, optimal size of banks, proper credit screening and monitoring and adherence regulatory norms would help in improving the credit quality of Indian banks.

Practical implications

The practical implication drawn from the study is that nonaccumulation of nonperforming loans (NPLs), higher profitability, better managerial efficiency, more diversified income from nontraditional activities, optimal size of banks, proper credit screening and monitoring and adherence regulatory norms would help in improving the credit quality of Indian banks.

Originality/value

This study is probably the first one that identifies in addition to the current year, whether lag of bank industry-macroeconomic affects the level of NPLs of Indian banks. So far, such an analysis has received less attention with respect to Indian banking industry, especially immediate aftermath of the global financial crisis.

Details

Asian Journal of Economics and Banking, vol. 6 no. 2
Type: Research Article
ISSN: 2615-9821

Keywords

Article
Publication date: 26 January 2023

Maryna Murdock, Thanh Ngo and Nivine Richie

This study aims to investigate the effect of public corruption on the performance and risk of financial institutions domiciled in the USA..

Abstract

Purpose

This study aims to investigate the effect of public corruption on the performance and risk of financial institutions domiciled in the USA..

Design/methodology/approach

This study uses the US Department of Justice’s (DOJ) Public Integrity Section Reports to proxy corruption. The analysis is performed by bank size and includes robustness checks for omitted variables and endogeneity concerns.

Findings

The results show that a corrupt environment is associated with lower bank performance without a reduction in risk. Larger banks tend to underestimate the increase in credit risk. Small- and medium-size banks seek to “re-capture” returns in corrupt districts by reducing their liquidity.

Research limitations/implications

The implication of this research is that financial institutions do not thrive in corrupt environments and are unlikely to participate in corrupt practices. Overall, this study documents the tangible harm inflicted by corrupt practices.

Practical implications

A practical implication is that banks may attempt to re-capture lower returns resulting from corrupt environments by extending more risky loans, specifically, commercial real estate loans.

Social implications

This study demonstrates the costly impact of corruption on large and small banks. While larger banks report higher share of non-performing loans, smaller banks show an increase in the provision for loan and lease losses, suggesting that smaller banks may be more risk averse.

Originality/value

Prior studies investigate corruption in US firms while excluding financial institutions. This study fills this gap by investigating the effect of public corruption on the performance and risk of financial institutions domiciled in the USA.

Details

Journal of Financial Crime, vol. 30 no. 6
Type: Research Article
ISSN: 1359-0790

Keywords

Article
Publication date: 11 July 2023

Ca Nguyen, Alejandro Pacheco and Randall Stone

This paper investigates the significant increase in S corporation banks converting to C corporations following the 2017 Tax Cuts and Jobs Act (TCJA) and the shift in motivations…

Abstract

Purpose

This paper investigates the significant increase in S corporation banks converting to C corporations following the 2017 Tax Cuts and Jobs Act (TCJA) and the shift in motivations behind these conversions.

Design/methodology/approach

The paper uses bank-level panel data from Federal Deposit Insurance Corporation (FDIC) Call Reports to analyze the determinants of S bank conversions after the TCJA, comparing post-TCJA conversion trends with pre-TCJA trends utilizing an ordinary least squares (OLS) and logistics model.

Findings

The study finds that post-TCJA conversions are primarily driven by financially stable banks seeking improved tax conditions and relaxed shareholder restrictions as C corporations. This contrasts with pre-TCJA conversions, which were predominantly driven by financially distressed S corporation banks seeking new equity capital to maintain solvency.

Research limitations/implications

The findings necessitate a comprehensive reconsideration of the Subchapter S status' sustained relevance for smaller institutions, especially in light of the comparative benefits now offered by the C corporation status post-TCJA. The results underscore the importance of ongoing academic investigation to deepen the understanding of the evolving fiscal landscape's effects on community banks, thereby contributing to the knowledge of the resilience and health of the US economy.

Practical implications

This research nudges policymakers and regulators to contemplate the ongoing relevance and advantages of the S corporation status. Given the substantial benefits conferred by the C corporation status in the post-TCJA environment, this study suggests that retaining the S corporation status may not offer the same appeal for smaller community banks as it once did.

Originality/value

This paper contributes to the broader understanding of the impact of tax policy on businesses' organizational choices, particularly in the banking industry and emphasizes the need for a comprehensive review of the S corporation status to assess its ongoing applicability in fostering small and community-focused financial institutions in light of the evolved corporate tax landscape.

Details

Managerial Finance, vol. 49 no. 12
Type: Research Article
ISSN: 0307-4358

Keywords

Book part
Publication date: 23 October 2017

Dragan Momirović, Marko Janković and Maja Ranđelović

The economic and financial crisis, especially the sovereign debt crisis, discovered many deficiencies and weaknesses in the banking sector in the European Union (EU). The need for…

Abstract

The economic and financial crisis, especially the sovereign debt crisis, discovered many deficiencies and weaknesses in the banking sector in the European Union (EU). The need for special surveillance and supervision of cross-border banking cooperation and termination of the toxic link between sovereign debt and banking sector have accelerated the process of forming and establishing a Banking Union (BU). An integrated financial framework has been established in which the European Central Bank (ECB) through the Single Supervisory Mechanism (SSM) has a key role and the responsibility for the overall supervision of the banking sector of the euro zone. The Single Resolution Mechanism (SRM) and schemes of the Single Deposit Guarantee Mechanism (SDGM) are under the national supervisory authorities while the European Banking Authority (EBA) is responsible for developing the Single Rules. From the new architecture is expected the preservation of the single market and a common currency, breaking “toxic connections” between sovereign debt and banks, mitigation and removal of financial instability and economic growth. The research shows that the BU together with the ECB in a certain sense, also contributes to the normalization of credit and financial conditions in the single mark. Estimates through SSM, conducted by the ECB and the EBA, during, 2014 and 2015 on 107 banks in 21 countries indicate progress toward solvency and resilience of the banking system of the euro area. Despite some initial success the entire project BU seems to have missed on opportunities, resulted in late reactions, and was too complex to be feasible. The political will of national governments to give up sovereignty over its banking sector and transfer competencies to the supranational institutions is a key factor in the success or failure of a BU. It seems so but past experience indicates that there is no political willingness to solve problems. Mainly most of the government avoids cleaning a hidden “skeleton in closets” due to lack of means for recapitalization while some are trying for loans from the ECB to help their banks. The ECB plays a key oversight role at the EU level and has too much power, which can cause risks caused by conflicting goals. The ECB is losing the role of the final refuge of liquidity, which is the main disadvantage of a BU. The SSM is susceptible to criticism due to difficulty in operation because of slow incorporation of European legislation into national law. Slow implementation carries risks of fragmentation of the market, regardless of the responsibility of the ECB. The financial capacity of the temporary agreement with the SRM is insufficient in solving the crisis of more banks while procedural application is complex and time-consuming. Planned backstop with a centralized resource is a resolution that is insufficient for solving the failure of big systemic banks, which are too big to bail. The heterogeneity of the existing Deposit Guarantee Schemes (DGS) and the banking systems of the member states of the euro zone caused controversy in terms of setting of common insurance schemes. The procedures for the recovery and resolution of critical banks are problematic.

Details

Economic Imbalances and Institutional Changes to the Euro and the European Union
Type: Book
ISBN: 978-1-78714-510-8

Keywords

Article
Publication date: 5 January 2023

Mehdi Mili and Yusuf Alaali

The purpose of this paper is to examine to which extent ownership and board structure improve financial institutions’ credit ratings.

Abstract

Purpose

The purpose of this paper is to examine to which extent ownership and board structure improve financial institutions’ credit ratings.

Design/methodology/approach

Ordered Probit regression models were used to examine the association between corporate governance attributes and banks’ credit ratings. The sample consists of 97 publicly traded financial institutions on Gulf Cooperation Council (GCC) stock exchange markets and cover the period 2010–2019. All GCC countries were considered in this study which are United Arab Emirates, Saudi Arabia, Bahrain, Oman, Kuwait and Qatar.

Findings

The results show that banks’ credit ratings are positively associated with the size of the board of directors and with the number of female directors serving in the board of directors. And it is negatively associated with the frequency of board meetings. Furthermore, this study finds evidence that nonbank financial institutions’ credit ratings are positively associated with CEO duality and with frequency of board meetings. Also, this study shows that their credit ratings are negatively associated with the ownership percentage held by the major five shareholders and with the number of board members serving in the board of directors.

Originality/value

Unlike previous research, this study focuses on the effect of the role of two different corporate governance dimensions, namely, ownership and board structure on the rating of financial institutions. This paper contributes to the extant literature in various ways. It bridges the gap of this topic in the GCC region. And, unlike previous research, this study focused on the financial sector and divided the sample into banks and other financial institutions to examine both subsamples separately. Also, this study introduced new ownership and board structure variables for the purpose of investigating the impact of corporate governance on financial institutions’ credit ratings such as the presence of women in the board of directors.

Details

Corporate Governance: The International Journal of Business in Society, vol. 23 no. 4
Type: Research Article
ISSN: 1472-0701

Keywords

Case study
Publication date: 5 April 2022

Kinjal Jethwani and Kumar Ramchandani

The learning outcomes of this paper is as follows: to understand and analyze the turnaround model of Pearce and Robbins (1993); to familiarize with parameters and actions in the…

Abstract

Learning outcomes

The learning outcomes of this paper is as follows: to understand and analyze the turnaround model of Pearce and Robbins (1993); to familiarize with parameters and actions in the Prompt Corrective Action (PCA) framework of Reserve Bank of India (RBI); to comprehend the probable situation warranting turnaround; to identify the key ratios which signal the financial health of a bank; and to understand the applicability of the turnaround model in bank’s revival.

Case overview/synopsis

The case explores various challenges faced by Mr Prashant Kumar during the turnaround process of Yes bank. The youngest bank started its operation in 2004, and in the first six years of operations, Yes bank registered a compound annual growth rate of 100% on the balance sheet, becoming the fourth-largest private sector bank in the country. However, the irony is that this shine and glitter was a short-lived phenomenon and after the regulatory inspection of 2016, Yes bank collapsed like a house of cards. This case has incorporated the three major phases of Yes bank i.e. the rise, the fall and the revival. The turnaround process led by Mr Kumar was explained using the turnaround model given by Pearce and Robbins (1993) and the PCA framework of the RBI. The conditions which warranted the need for the turnaround in Yes bank and the factors responsible for the same are discussed. The multiple challenges faced by Mr Kumar and the strategic responses adopted by him were incorporated in great detail. What were the outcomes of those strategic choices? Should he continue with similar approaches? Was he successful in stabilizing the bank which was broken from the core? What next if stability is achieved? How Mr Kumar should lift Yes bank to the recovery zone? And most importantly, will Mr Kumar be able to change the poor public image of Yes bank? The reflections of all the above questions are narrated with the actions of Mr Kumar.

Complexity academic level

The case is intended to be taught in the class of strategic management for postgraduate-, master- or executive-level participants of business administration. As the case is focused on a banking organization, it also can be taught in banking class.

Supplementary materials

Teaching Notes are available for educators only.

Subject code

CSS 1: Accounting and Finance.

Details

Emerald Emerging Markets Case Studies, vol. 12 no. 2
Type: Case Study
ISSN: 2045-0621

Keywords

Article
Publication date: 17 May 2022

Sameh Reyad, Gopalakrishnan Chinnasamy and Araby Madbouly

The purpose of this study is to identify the effectiveness of risk management and corporate governance (CG) practices followed in Islamic banks (IBs) of Gulf Cooperation Council…

Abstract

Purpose

The purpose of this study is to identify the effectiveness of risk management and corporate governance (CG) practices followed in Islamic banks (IBs) of Gulf Cooperation Council (GCC) countries. Hence, they are considered as critical performance indicators for financial institutions and IBs. Though the IBs are growing, there are still challenges associated with their operations because of Shariah noncompliance risks, governance, capital adequacy ratio and other risks.

Design/methodology/approach

This study uses a mixed-method approach, gathering qualitative data from senior risk managers of chosen IBs via semi-structured interviews and quantitative data from selected IBs financial reports using capital IQ resources. The information was gathered for a considerable time (2013–2019), and the CAMELS rating system was used to analyze it.

Findings

The results showed that GCC IBs manage their business risks well through effective CG except in certain areas like asset quality management and liquidity.

Practical implications

The result of this study can provide support to the banks’ top management, chief executives, regulators and government, in all practices related to risk assessment, management and mitigation.

Originality/value

This study contributes to the existing knowledge in risk management and CG practices. Furthermore, this study is a new attempt in knowing the risk management and CG practices followed in IBs in GCC countries using the mixed-method approach.

Details

Corporate Governance: The International Journal of Business in Society, vol. 22 no. 7
Type: Research Article
ISSN: 1472-0701

Keywords

Article
Publication date: 1 April 1986

Irving Ludmer

Webster's defines a turnaround as a reversal of one's course, attitude, position, or policy. While such a definition accounts for the key elements of a turnaround, it presents…

Abstract

Webster's defines a turnaround as a reversal of one's course, attitude, position, or policy. While such a definition accounts for the key elements of a turnaround, it presents them as discrete and separate. From a practical perspective, turnaround management must consider all these elements complementary. At Steinberg, Inc., we're in the process of a turnaround, and I'd like to share with you some of our efforts of the past two years.

Details

Planning Review, vol. 14 no. 4
Type: Research Article
ISSN: 0094-064X

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