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11 – 20 of over 12000Samridhi Suman and Shveta Singh
The purpose of this paper is to empirically investigate the influence of corporate governance variables relating to the board of directors, audit and ownership on the agency…
Abstract
Purpose
The purpose of this paper is to empirically investigate the influence of corporate governance variables relating to the board of directors, audit and ownership on the agency problems that inflict a firm's investments in capital and research and development (R&D) expenditures. This study posits that the R&D investments are inflicted by the agency problem of “quiet life” whereas “empire-building” agency problem affects capital expenditure decisions.
Design/methodology/ approach
This study analyses the investment behaviour of non-financial and non-utility firms listed on NIFTY 200 from FY 2009 to FY 2018 using a static and dynamic model.
Findings
The results from the static model suggest that ownership concentration mitigates the agency problem of the “quiet life” that affects R&D expenditures. However, no corporate governance attribute has a significant impact on R&D investments under the assumption of the dynamic model. In respect of capital expenditures, the analysis of static model yields that audits by large auditor firms and usage of non-audit services ameliorate the agency problem of “empire-building”. The results from the dynamic model show that independent boards worsen it. They also continue to provide empirical evidence in favour of large auditors.
Originality/value
This paper contributes to the literature on the corporate governance-investment association by simultaneously examining the impact of multiple corporate governance attributes on the agency problems of “quiet life” and “empire-building” that affect R&D and capital expenditures, respectively, in a static and dynamic context for a sample of Indian firms.
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David Adeabah and Charles Andoh
The study examines the relationship between the consequential social cost of market power (i.e. welfare performance of banks) and cost efficiency using data covering the period…
Abstract
Purpose
The study examines the relationship between the consequential social cost of market power (i.e. welfare performance of banks) and cost efficiency using data covering the period 2009 to 2017 from the Ghanaian banking industry.
Design/methodology/approach
The study adopts the ordinary least squares (OLS), fixed effect (FE) panel regression and the quantile regression (QR) approaches to control for heterogeneity and provide increased room for policy relevance. The two-stage least squares instrumental variables (2SLS-IV) regression is used to ensure the robustness of the findings against the problem of possible reverse causality.
Findings
The results indicate a positive relationship between banks' welfare performance and cost efficiency, which suggests that greater cost efficiency hedges welfare losses. In other words, welfare gains and cost-efficient banks are not mutually exclusive. Also, the results show evidence that the sensitivity of welfare gain to cost efficiency depends on the knowledge of local market dynamics. Further, the findings from the QR estimation suggest that, but for welfare loss at low (Q.25) to the median (Q.50) quantiles, cost efficiency is a necessary and sufficient condition to hedge the welfare losses.
Practical implications
The results demonstrate that financial consumer protection cannot be achieved without cost efficiency in the presence of both foreign banks and high market knowledge. Therefore, our paper suggests an integrated cost efficiency policy approach that has the complementary effect of a robust information sharing mechanism and incentives to hedge against welfare losses in the banking sector of emerging economies. Moreover, if welfare gain is synonymous with cost-efficient banks, then the presence of a quiet life is typical of financial consumer protection.
Originality/value
This study provides insight into the importance of cost efficiency to the public policy of financial consumer protection in an era of foreign banks' dominance. From the review of prior literature, this paper is the first to apply the QR estimation technique to examine the effect of cost efficiency throughout the conditional distribution of bank welfare performance rather than just the conditional mean effect of cost efficiency.
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Abdul Latif Alhassan and Nicholas Biekpe
The purpose of this paper is to examine the empirical effect of competition on cost and profit efficiency in the South African non-life insurance market in a three-stage analysis.
Abstract
Purpose
The purpose of this paper is to examine the empirical effect of competition on cost and profit efficiency in the South African non-life insurance market in a three-stage analysis.
Design/methodology/approach
Using annual firm level data on 80 non-life insurance companies from 2007 to 2012, the authors first employ the stochastic frontier analysis (SFA) to estimate cost and profit efficiency scores. In the second stage, the authors measure insurance market competition using the Panzar-Rosse (P-R) H-statistics. In the final stage, the authors estimate a fixed-effects panel regression model which controls for heteroskedasticity to examine the effect of competition on the estimated efficiency scores. Firm size, diversification, age, risk, reinsurance and leverage are employed as control variables.
Findings
From the SFA, the authors find average cost and profit efficiency of 80.08 and 45.71 per cent, respectively. This suggests that non-life insurers have high levels of efficiency in cost and low efficiency in profit. The annual estimates of the P-R H-statistics also suggest that firms in the market earn revenues under conditions of monopolistic competition. The authors find a positive effect of competition on cost and profit efficiency to validate the “quiet-life” hypothesis which posits that competition improves efficiency.
Practical implications
Regulatory policies should be directed towards enhancing competition to improve on the low profit earning potential of firms in the non-life market.
Originality/value
To the best of the authors’ knowledge, this study presents the first application of a non-structural measure of competition to examine the empirical relationship between competition and efficiency in insurance markets.
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Amitabh Anand, Jessica Doll and Prantika Ray
This study aims to develop and validate two scales: quiet quitting (QQ), measuring individual-level work disengagement, low organisational commitment and not going above and…
Abstract
Purpose
This study aims to develop and validate two scales: quiet quitting (QQ), measuring individual-level work disengagement, low organisational commitment and not going above and beyond in work, and quiet firing (QF), measuring employee perceptions of the degree to which their managers devalue them and when organisations intentionally create a situation to make them quit.
Design/methodology/approach
The scale development process involved item generation through literature search, review and interviews with working executives. The scales were then tested online by 264 participants from India.
Findings
In the quantitative analysis, the QQ and QF scales have good psychometric properties when tested with factor analysis, reliability analysis and Cronbach’s alpha. Furthermore, the convergent, discriminant and predictive validity of outcome constructs also showed significance.
Originality/value
This study found that the QQ and QF scales are highly reliable and exhibit good psychometric properties. To the best of the authors’ knowledge, this is one of the first studies to empirically develop and test the QQ and QF constructs and offer implications for organisations and managers.
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Quiet life hypothesis (QLH) states that banks with a higher market power will generate high profitability quietly, even though it could cause inefficiency. In the long term, it…
Abstract
Purpose
Quiet life hypothesis (QLH) states that banks with a higher market power will generate high profitability quietly, even though it could cause inefficiency. In the long term, it could turn a high profitability into a lower future profitability. This paper identifies QLH-reborn through the holdinglisation strategy of the Indonesian Government to include all state-owned banks into one holding, hence increasing the market power of Indonesian state-owned banks within ASEAN. Optimum profitability and optimum efficiency are the objectives of the “holdinglisation” idea. Therefore, the purpose of this paper is to analyse the relevance of holdinglisation within the Indonesian banking industry.
Design/methodology/approach
This paper focusses on analysing the efficiency and soundness of four state-owned conventional banks and four state-owned Islamic banks in Indonesia during 2011–2015. Subsequently, this paper analyses the impact of bank effectiveness index and soundness rank on return on average asset (ROAA) and ROAE through the data panel of general least square regression using STATA.
Findings
This paper shows that all state-owned commercial banks in Indonesia during 2011–2015 are efficient and sound. Furthermore, this paper finds that market power (market share for deposit and market share for loans) has an insignificant impact on bank efficiency (BE) index, bank soundness rating, ROAA and EM. Meanwhile, BE index and BS rating have a significant impact on ROAA. Therefore, this paper concludes that holdinglisation regulation as QLH-reborn is irrelevant for Indonesian state-owned banks at this moment.
Research limitations/implications
This paper has a crucial limitation. Holdinglisation as QLH-reborn is irrelevant under the condition that all state-owned commercial banks in Indonesia are efficient and sound. Moreover, this paper contributes another actual empirical study of QLH.
Practical implications
This paper represents a scientific argumentation towards a holdinglisation strategy of state-owned commercial banks in Indonesia. Therefore, this paper could be a scientific reference for the Indonesian Government to improve Indonesian state-owned commercial banks competitiveness in ASEAN.
Originality/value
This paper is urgently needed for the Indonesian banking industry because the Indonesian Government should consider the drawbacks of holdinglisation as QLH reborn to the Indonesian banking industry, such as inefficiency and the risks of financial failure. Moreover, if the bank experiences financial failure, it could have a detrimental and lasting effect on the country’s macroeconomic condition.
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Allen N. Berger and Timothy H. Hannan
Prior research on the structure‐performance relationship has not investigated all of the relevant relationships among market structure, profits, prices, and explicitly calculated…
Abstract
Prior research on the structure‐performance relationship has not investigated all of the relevant relationships among market structure, profits, prices, and explicitly calculated measures of firm efficiency. This paper replicates the four approaches in the literature, adds several innovations, and applies the analysis to banking data. We find more support for the structure‐conduct‐performance hypothesis than for the relative‐market‐power and efficient‐structure hypotheses, although the data are not fully consistent with any of these theories. We also find support for Hick's quiet‐life hypothesis, which implies that firms with market power adhere less rigorously to efficiency maximization. J.E.L. Classification Numbers G21, G28, L41, L89 The opinions expressed do not necessarily reflect those of the Board of Governors or its staff. The authors thank Dean Amel, Jim Berkovec, Myron Kwast, Nellie Liang, LenNakamura, Steve Rhoades, and participants in the meeting of the Federal Reserve System Committee on Financial Structure and Regulation for helpful comments, and Ken Cavalluzzo, Jalal Akhavein, John Leusner, and Seth Bonime for outstanding research assistance.
Mine Aysen Doyran and Zachary Roman Santamaria
The purpose of this paper is to analyze the performance of banking institutions in Costa Rica over the period 2004–2014.
Abstract
Purpose
The purpose of this paper is to analyze the performance of banking institutions in Costa Rica over the period 2004–2014.
Design/methodology/approach
This paper employs system GMM, dynamic panel data and traditional financial hypothesis framework to analyze bank performance and assess marketplace sustainability for a sample of commercial and cooperative banks from Costa Rica. In the assessment, the authors visit the relative market power, structure conduct performance (SCP) and efficient structure literature.
Findings
Market share (MS) is positively related to performance whereas the authors find a negative effect of market concentration (Herfindahl–Hirschman index) on bank profits, thereby refuting the SCP hypothesis. The authors accept the “quiet life” hypothesis within Costa Rican banks since a moderate level of profit persistence is detected. Commercial banks are less profitable. Yet when crisis is introduced to the models, it has a significant and negative impact on overall bank performance.
Research limitations/implications
The authors selected years and banks based on available data plus default information in the relevant database. More insights can be gained from post-2014 developments.
Practical implications
The current results and conclusions have implications for developing economies (and economic development, in general) by showing that the traditional understanding of cooperative bank model as better for the public good may not be necessarily true. They offer insight into the understanding of how different bank-type institutions affect the public good. Furthermore, expanding the research to Latin America in order to directly compare commercial and cooperative enterprises via a meta-frontier technique would help buttress this evidence.
Originality/value
This is the most recent study to provide such an investigation for a Latin American country with a sizable MS for cooperative and public sector banks. The paper offers analysis that has been limited in Latin American banking markets thus far.
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Paolo Coccorese and Biswa Swarup Misra
This paper investigates the relationship between market power and efficiency for Indian banks in order to test the validity of the quiet life hypothesis (QLH) during 2005–2019.
Abstract
Purpose
This paper investigates the relationship between market power and efficiency for Indian banks in order to test the validity of the quiet life hypothesis (QLH) during 2005–2019.
Design/methodology/approach
First, the bank-level DEA efficiency scores and three measures of the Lerner index: traditional, efficiency-adjusted, stochastic are estimated. Then, efficiency scores are regressed on Lerner indices plus a set of banking and economic control variables.
Findings
Robust evidence against the QLH is obtained. Moreover, the conventional Lerner index suggests that market power of Indian banks, as well as of the different bank groups, increased during the study period, due to a greater reduction in costs compared to that of the price of banking services. The efficiency scores also declined for the banking system as a whole, and for all bank groups except new private banks.
Originality/value
This is the first study testing the QLH for the different categories of Indian banks and also provides robust inferences by using both stochastic and non-stochastic measures of market power.
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Van Son Lai, Duc Khuong Nguyen, William Sodjahin and Issouf Soumaré
We identify a novel concept of discretionary idiosyncratic volatility proxied by the idiosyncratic volatility component not related to the non-systematic industry volatility as a…
Abstract
We identify a novel concept of discretionary idiosyncratic volatility proxied by the idiosyncratic volatility component not related to the non-systematic industry volatility as a source of agency problems that have implications for firms’ cash holdings and their investment decisions. We find that firms with low discretionary idiosyncratic volatility, which likely captures discretionary effort and risk-taking by managers, have smaller cash reserves. Moreover, while high discretionary idiosyncratic volatility firms spend cash internally (internal capital building), low discretionary idiosyncratic volatility firms use it for external acquisitions, consistent with the “quiet life” hypothesis. Our findings thus indicate a need for reinforcement of existing regulations and corporate laws to control for agency costs, which could in turn reduce firm risk and the probability of financial meltdown at the aggregate level.
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Simplice Asongu, Rexon Nting and Joseph Nnanna
In this study, we test the so-called “Quiet Life Hypothesis” (QLH), which postulates that banks with market power are less efficient.
Abstract
Purpose
In this study, we test the so-called “Quiet Life Hypothesis” (QLH), which postulates that banks with market power are less efficient.
Design/methodology/approach
We employ instrumental variable Ordinary Least Squares, Fixed Effects, Tobit and Logistic regressions. The empirical evidence is based on a panel of 162 banks consisting of 42 African countries for the period 2001–2011. There is a two-step analytical procedure. First, we estimate Lerner indices and cost efficiency scores. Then, we regress cost efficiency scores on Lerner indices contingent on bank characteristics, market features and the unobserved heterogeneity.
Findings
The empirical evidence does not support the QLH because market power is positively associated with cost efficiency.
Originality/value
Owing to data availability constraints, this is one of the few studies to test the QLH in African banking.
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