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Article
Publication date: 17 June 2021

Claus Højmark Jensen and Thomas Borup Kristensen

This paper aims to extend the understanding of how real options reasoning (ROR) is associated with downside risk and how a firm’s portfolio (explore and exploit) of…

Abstract

Purpose

This paper aims to extend the understanding of how real options reasoning (ROR) is associated with downside risk and how a firm’s portfolio (explore and exploit) of investment activities affects managers’ ability to effectively apply ROR in relation to downside risk.

Design/methodology/approach

The survey method is used. It is applied to a population of Danish firms, which in 2018 had more than 100 employees. The chief financial officer was the target respondent.

Findings

This study finds that a higher level of ROR is associated with lower levels of downside risk. ROR’s association with lower levels of the downside risk is also moderated by the level of relative exploration orientation in a negative direction.

Originality/value

The field of ROR research on downside risk and portfolio subadditivity has been dominated by research focused on multinationality. This paper extends extant literature on ROR by studying ROR as a multidimensional construct of firm action, which is associated with lower levels of downside risk, also when studied outside of a multinationality setting. This is the case when ROR is implemented as a complete system. This paper also applies a framework of exploitation and exploration to show that findings on subadditivity in options portfolios caused by asset correlations extend outside the scope of multinationality and into one of product/service innovation.

Details

European Business Review, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0955-534X

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Article
Publication date: 29 January 2020

Jamshaid Anwar Chattha, Syed Musa Alhabshi and Ahamed Kameel Mydin Meera

In line with the IFSB and BCBS methodology, the purpose of this study is to undertake a comparative analysis of dual banking systems for asset-liability management (ALM…

Abstract

Purpose

In line with the IFSB and BCBS methodology, the purpose of this study is to undertake a comparative analysis of dual banking systems for asset-liability management (ALM) practices with the duration gap, in Islamic Commercial Banks (ICBs) and Conventional Commercial Banks (CCBs). Based on the research objective, two research questions are developed: How do the duration gaps of ICBs compare with those of similar sized CCBs? Are there any country-specific and regional differences among ICBs in terms of managing their duration gaps?

Design/methodology/approach

The research methodology comprises two-stages: stage one uses a duration gap model to calculate the duration gaps of ICBs and CCBs; stage two applies parametric tests. In terms of the duration gap model, the study determines the duration gap with a four-step process. The study selected a sample of 100 banks (50 ICBs and 50 CCBs) from 13 countries for the period 2009-2015.

Findings

The paper provides empirical insights into the duration gap and ALM of ICBs and CCBs. The ICBs have more variations in their mean duration gap compared to the CCBs, and they have a tendency for a higher (more) mean duration gap (28.37 years) in comparison to the CCBs (11.79 years). The study found ICBs as having 2.41 times more duration gap compared to the CCBs, and they are exposed to increasing rate of return (ROR) risk due to their larger duration gaps and severe liquidity mismatches. There are significant regional differences in terms of the duration gap and asset-liability management.

Research limitations/implications

Future studies also consider “Off-Balance Sheet” activities of the ICBs, with multi-term duration measures. A larger sample size of 100 ICBs with 10 years’ data after the GFC would be more beneficial to the industry. In addition, the impact of an increasing benchmark rate (e.g. 100, 200 and 300 bps) on the ICBs as per the IFSB 20 per cent threshold can also be established with the duration gap approach to identify the vulnerabilities of the ICBs.

Practical implications

The study makes profound contributions to the literature and suggests various policy recommendations for Islamic banks, regulators, and standard setters of the ICBs, for identifying and measuring the significance of the duration gaps; and management of the ROR risk under Pillar 2 of the BCBS and IFSB, for financial soundness and stability purposes.

Originality/value

To the best of the authors’ knowledge, this is a pioneer study in Islamic banking involving a sample of 100 banks (50 ICBs and 50 CCBs) from 13 countries. The results of the study provide original empirical evidence regarding the estimation of duration gap, and variations across jurisdictions in terms of vulnerability of ICBs and CCBs in dual banking systems.

Details

Journal of Islamic Accounting and Business Research, vol. 11 no. 6
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 1 September 1998

Tom W. Miller, Bernell Stone and Harold R. Silver

Discusses arbitrage pricing theory as a multifactor model for explaining rates of return on securities; and the use of principal components analysis to reduce the number…

Abstract

Discusses arbitrage pricing theory as a multifactor model for explaining rates of return on securities; and the use of principal components analysis to reduce the number of variables studies. Applies these ideas to returns on treasury bills and government bonds for 1,000 business days ending in March 1997 to obtain a set of three endogenous factors for the term structure of interest rates, forecasts returns for one‐day and 30‐day horizons and produces a time series of the forecast errors for eight short‐term interest rates. Compares the results with those from a single factor autoregessive forecasting model and finds that although their accuracy is similar for short horizons, the multifactor model is superior for longer horizons and shorter time to maturity.

Details

Managerial Finance, vol. 24 no. 9/10
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 26 April 2019

Simon Archer and Rifaat Ahmed Abdel Karim

This paper aims to examine the issue that arises in the context of benchmark rate (or interest rate) changes made for reasons of monetary policy in a jurisdiction with a…

Abstract

Purpose

This paper aims to examine the issue that arises in the context of benchmark rate (or interest rate) changes made for reasons of monetary policy in a jurisdiction with a significant presence of Islamic banks. Changes, especially increases, in the prevailing interest rate made by central banks raise issues of asset-liability management for banks, which typically have longer maturities on the asset side than on the liabilities side, resulting in exposure to interest rate risk for conventional banks, and what is known as rate of return (RoR) risk for Islamic banks, which for reasons of compliance with Islamic religious law (Shari’ah) do not use interest in their operations. Islamic banks use various financial instruments which reflect the cost of funds by means of contracts of sale on credit or of leasing or forms of partnership, which allow them to earn returns on their funds and to pay returns to customers who deposit funds with them.

Design/methodology/approach

The methodology of this study consisted of a descriptive analysis of the relevant characteristics of Islamic banks and their economic and regulatory environments, illustrated by a case study approach applied to two jurisdictions, namely, Sudan and Malaysia.

Findings

In jurisdictions where Islamic banks represent a significant share of the market for financial services, if the contracts used in Islamic financing allow for periodic adjustments of the profit rate or lease rental, this could result in a significant impediment to the full implementation of monetary policy and hence to the maintenance of financial stability.

Originality/value

This study is (to the best of authors’ knowledge) the first thorough analysis in the literature of the issues arising from the exposure of Islamic banks to RoR risk and has clear implications for regulatory and central bank policy.

Details

Journal of Financial Regulation and Compliance, vol. 27 no. 2
Type: Research Article
ISSN: 1358-1988

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Article
Publication date: 18 August 2021

Syed Alamdar Ali Shah, Raditya Sukmana and Bayu Arie Fianto

The purpose of this study is to develop, test and examine econometric methodology for Sharīʿah-compliant duration models of Islamic banks.

Abstract

Purpose

The purpose of this study is to develop, test and examine econometric methodology for Sharīʿah-compliant duration models of Islamic banks.

Design/methodology/approach

The research evaluates all existing duration models from Sharīʿah’s perspective and develops a four-stage framework for testing Sharīʿah-compliant duration models. The econometric methodology consists of multiple regression, Johansen co-integration, error correction model, vector error correction model (VECM) and threshold vector error models (TVECM).

Findings

Regressions analysis suggests that returns on earning assets and interbank offered rates are significant factors for calculating the duration of earning assets, whereas returns paid on return bearing liabilities and average interbank rates of deposits are significant factors for duration of return bearing liabilities. VECM suggests that short run duration converges into long run duration and TVECM suggests that management of assets and liabilities also plays a significant role that can bring about a change of about 15% in respective durations.

Practical implications

Sharīʿah-compliant duration models will improve risk and Sharīʿah efficiency, which will ultimately improve market capitalization and returns stability of Islamic banks in the long run.

Originality/value

Sharīʿah-compliant duration models testing provides insight into how various factors, namely, rates of return, benchmark rates and managerial skills of Islamic bank risk managers impact durations of assets and liabilities. It also explains the future course of action for Sharīʿah-compliant duration model testing.

Details

Journal of Islamic Accounting and Business Research, vol. 12 no. 7
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 1 July 1998

Dan W. Hess

Defines the term “emerging market” and identifies the necessary preconditions which allow stock markets to develop: government commitment, market economy, a legal system…

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Abstract

Defines the term “emerging market” and identifies the necessary preconditions which allow stock markets to develop: government commitment, market economy, a legal system and generally available education. Discusses some factors affecting equity market growth, e.g. economic and regulatory development/reform, legal and market structure reform, requirements for financial intermediaries, disclosure, accounting standards and education/training for participants in financial markets. Explains how these factors apply to India, giving statistical indicators for the economy and the Bombay Stock Exchange for 1991‐1995. Believes the prospects for foreign and domestic equity investment in India and other developing countries are good providing that they maintain a stable economy and an investor‐friendly environment

Details

Managerial Finance, vol. 24 no. 7
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 23 March 2010

Doug Galwey and Barry Ogilvie

The purpose of this paper is to present the theoretical foundations and lessons learned in the development and implementation of an institutional engagement framework for

Abstract

Purpose

The purpose of this paper is to present the theoretical foundations and lessons learned in the development and implementation of an institutional engagement framework for monitoring and managing the Crown's ownership interests in the New Zealand tertiary education sector.

Design/methodology/approach

The core analytics and tasks comprise financial stress testing, the Baldrige assessment approach and capability benchmarking, integrated into an overall risk management system using many of the elements of Robert Simons' “Levers of Control”.

Findings

The approach has been useful in identifying institutions most at risk and requiring higher levels of direct engagement, including statutory management intervention by the Crown.

Practical implications

It is considered there are ample performance measurement tools available and that ultimately success is through system design and management of the performance management process itself, with the capability of those undertaking the activity being as equally important as those whose capability is being assessed.

Originality/value

This paper shares insights on framework design and deployment with fellow practitioners.

Details

Measuring Business Excellence, vol. 14 no. 1
Type: Research Article
ISSN: 1368-3047

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Article
Publication date: 10 November 2014

Rifki Ismal

The purpose of this paper is to analyze individual financing instruments and portfolios of instruments, and find the location of the most efficient portfolio financing…

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1315

Abstract

Purpose

The purpose of this paper is to analyze individual financing instruments and portfolios of instruments, and find the location of the most efficient portfolio financing. The Indonesian Islamic banking industry is very promising with four dominant financing instruments, namely, Mudarabah, Musharakah, Murabahah and Istishna. Each instrument has unique pattern of return, expected return and risk. Moreover, the variances of two, three and four financing instruments suggest the importance of identifying the most prospective financing instruments. Further, the most efficient portion of the most prospective financing is determined by constructing an efficient portfolio financing frontier.

Design/methodology/approach

Technically, it uses risk and return theory to compute risk, return and variance of an instrument and set of financing instruments. In addition, it uses an efficient portfolio frontier curve to locate all combination of the most progressive portfolio financing and finds the most efficient portfolio financing.

Findings

It finds some interesting finding with regard to the pattern of return, characteristics of a financing instrument and groups of financing instruments. The most essential finding of the paper is the location of the most efficient portfolio financing.

Research limitations/implications

The information and finding of this paper benefit the Indonesian Islamic banking industry to optimize the performance of an individual and groups of financing instruments. Particularly, for the most progressive financing instruments, it proposes the combinations of portfolio financing which give optimum output.

Originality/value

To the best of author’s knowledge, this is the first paper trying to analyze and construct an efficient portfolio financing frontier of the Indonesian Islamic banking industry.

Details

Humanomics, vol. 30 no. 4
Type: Research Article
ISSN: 0828-8666

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Article
Publication date: 1 June 1998

Ahmed Riahi‐Belkaoui and Dimitra Koula Alvertos

Summarizes previous research on financial analysts’ forecasts and the segmentation of international finance markets. Hypothesizes that the accuracy of earnings forecasts…

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699

Abstract

Summarizes previous research on financial analysts’ forecasts and the segmentation of international finance markets. Hypothesizes that the accuracy of earnings forecasts in a country is negatively related to the country return, and positively to the country risk. Uses 1992‐94 data from 12 countries to test this, supports the hypothesis and calls for further research.

Details

Managerial Finance, vol. 24 no. 6
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 1 July 2005

Steven H. Appelbaum, Ethan Adeland and Jake Harris

Since 9/11, the world has been on alert and it is just a matter of time before a sports facility is targeted. No empirical studies have examined the stress levels of…

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3135

Abstract

Since 9/11, the world has been on alert and it is just a matter of time before a sports facility is targeted. No empirical studies have examined the stress levels of employees in sports facilities. Tangential studies will show, stress symptoms, changes in behavior and life style continued long after 9/11 to the point that it became a habit and no longer an isolated event. However, there is still the question of a secure work environment for the employees of these sports facilities. The current level of security being implemented in sport facilities is no longer sufficient to ensure the safety of employees, participants and spectators. Recommendations have been chosen carefully and are budget dependent. The implementation of biometrics will potentially reduce the stress levels of the targeted work environments by making it a safer place. The increased level of stress in the work environment has been partially reduced by several stress management techniques that include: task redesign, flexible work schedules, participative management, increased employee autonomy, employee fitness programs and open lines of communication to voice on going concerns to insure the safety of fans, athletes and employees. A conclusion is there is still a major concern of a secure work environment for the employees of these sports facilities at this date. This is the challenge.

Details

Management Research News, vol. 28 no. 7
Type: Research Article
ISSN: 0140-9174

Keywords

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