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Article

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…

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

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Article

Kathryn R. Stam and Jeffrey M. Stanton

The purpose of this article is to understand the relationship between emotional salience and workplace events related to technology change by using a combination of key…

Abstract

Purpose

The purpose of this article is to understand the relationship between emotional salience and workplace events related to technology change by using a combination of key features of two popular psychological theories – regulatory focus theory and affective events theory – to view the change process in diverse settings.

Design/methodology/approach

This paper is based on analysis of 18 months of qualitative interview data (n=52 respondents) collected before, during and after the introduction of three different new technologies in three organizations – a hospital, a manufacturing facility, and a psychological counseling center. The mixed methods approach combined descriptive case studies and a structured coding approach derived from a synthesis of the two theories with which the transition processes at each organization were examined.

Findings

Employees with a so‐called promotion‐focused orientation were more likely to accept an IT change and the events related to it. Organizational cultures and the staging of events play a role in individuals' affective reactions and behavior. The use of the framework is promising for illuminating the role of emotions, the timing of change events, and subsequent behavior in response to organizational change.

Research limitations/implications

The variety of types of organizations and job types represented, as well as the types of IT change proposed in each, provides a rich sample of diverse motivations and scenarios. Further development of the relationships between the timing of organizational events and regulatory focus is needed.

Practical implications

The proposed framework suggests a shift in emphasis away from beliefs and towards emotionally relevant events. The findings suggest consideration of two distinct motivational aspects of both new and old technology. A peak in emotional events related to training indicates that an organization must actively manage how the plans, strategies, and communications with regard to training affect workers' beliefs and expectations.

Originality/value

The paper highlights how an emphasis on emotionally relevant events and attention to the regulatory focus involved in interpretation of those events could provide the basis for new approaches to organizational interventions. Interventions should focus on facilitating situations where individuals can frame relevant transition events with a promotion focus.

Details

Information Technology & People, vol. 23 no. 1
Type: Research Article
ISSN: 0959-3845

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Article

Huy N.A. Pham, Vikash Ramiah, Imad Moosa and Justin Hung Nguyen

The purpose of this paper is to test the effects of financial regulatory announcements on risk and return in the Vietnamese equity market.

Abstract

Purpose

The purpose of this paper is to test the effects of financial regulatory announcements on risk and return in the Vietnamese equity market.

Design/methodology/approach

The event study methodology is used for the return analysis, and asset pricing models are adjusted for the risk analysis. Various robustness tests are used, including the Corrado non-parametric ranking test and the Chesney et al. non-parametric conditional distribution test, as well as GARCH, TARCH, EGARCH and PARCH specifications for the risk models.

Findings

The authors find evidence for both negative and positive reactions as well as risk shifting behaviour in the form of a diamond risk structure.

Originality/value

This paper fills a major gap in the literature by investigating the market’s reaction to bank regulatory announcements across financial and non-financial sectors in the Vietnamese equity market.

Details

Pacific Accounting Review, vol. 29 no. 2
Type: Research Article
ISSN: 0114-0582

Keywords

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Article

Ashrafee Tanvir Hossain and Lawrence Kryzanowski

The purpose of this paper is to review the relevant literature on the causes of and regulatory reactions to the financial crisis of the last decade, popularly known as the…

Abstract

Purpose

The purpose of this paper is to review the relevant literature on the causes of and regulatory reactions to the financial crisis of the last decade, popularly known as the “Global Financial Crisis (GFC)” or the “Housing Crisis” in the USA.

Design/methodology/approach

This review primarily focuses on the four main causes of the crisis, namely, excessive household leverage, securitization, corporate governance and credit ratings. The main reaction vis-à-vis recovery measures taken by most governments were quantitative easing (QE), bailouts and more stringent regulations of banks, though the discussion mainly focuses on QE.

Findings

In this paper, the authors summarize the literature on the causes and regulatory reactions to the GFC and propose future avenues of research for various topics.

Originality/value

Research on the GFC spans multiple disciplines as well as multiple facets of financial economics. A review paper such as this should help future researchers in generating ideas and gathering information for their research. Given that no review uncovers all worthy papers, the authors apologize in advance to the authors of any papers that the authors have inadvertently not reviewed in this paper.

Details

Managerial Finance, vol. 45 no. 7
Type: Research Article
ISSN: 0307-4358

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Article

Trevor C. Chamberlain, Abdul-Rahman Khokhar and Sudipto Sarkar

The purpose of this paper is to offer an alternative approach to measure the cost-benefit tradeoff, by analyzing stockholders’ reactions to the announcement and vote on…

Abstract

Purpose

The purpose of this paper is to offer an alternative approach to measure the cost-benefit tradeoff, by analyzing stockholders’ reactions to the announcement and vote on the proposed rule. More specifically, the authors use event study methodology to investigate the stock price reaction on two key dates; that is, the announcement date and the voting date of the proposed short-term borrowing disclosure regulation, and argue that positive abnormal stock returns indicate that the expected benefits of the regulation outweigh the compliance costs. A negative reaction would indicate that, in the eyes of investors, the costs of compliance exceed the expected benefits.

Design/methodology/approach

The authors use event study analysis and apply the market model to equal-weighted portfolios of 2,450 financial and 3,985 non-financial US firms to calculate mean cumulative abnormal stock returns (MCARs, hereafter) on the announcement and voting dates. Then, the authors conduct mean difference tests on firm-level MCARs across three event windows, that is, (−30,−1), (0,+1) and (+2,+30), to confirm if the MCARs of financial firms are different from those of non-financial firms on both the announcement and the voting dates. Finally, robustness tests are performed with alternate benchmark, using value-weighted portfolios, for the market.

Findings

The authors find that the market reaction is positive and significant at the announcement date and negative and significant at the voting date of the proposed regulation of short-term borrowing disclosure regulation. Overall, the paper documents a positive market reaction, indicating the usefulness of the disclosure from the vantage point of users. Examining and comparing the results for various subsets, including commercial banks and saving institutions, bank holding companies, size quartiles, and exchange listed and OTC registrants, the authors find that a “one-size-fits-all” approach to regulation is undesirable.

Originality/value

This is first empirical study, to best of the authors’ knowledge, to explore stockholder reaction to a proposed, rather than an enforced, Securities and Exchange Commission (SEC) regulation and may contribute to the SEC’s final decision on the rule. Second, given a dissimilar reaction from investors of different firms, the results suggest that the SEC needs to reconsider its one-size-fit-all approach for the proposed rule. Finally, because the proposed disclosure would affect all SEC registrants, the economic implications of the findings are important not only for stockholders, but also for regulators, as they attempt to manage systematic risk and optimize the level of market intervention.

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Article

N. Rowbottom and M.A.S. Schroeder

The purpose of this paper is to analyse the controversial repeal of legislation requiring UK companies to disclose an Operating and Financial Review (OFR). After a lengthy…

Abstract

Purpose

The purpose of this paper is to analyse the controversial repeal of legislation requiring UK companies to disclose an Operating and Financial Review (OFR). After a lengthy period of consultation and the preparation of a reporting standard, legislation was passed in March 2005 requiring UK listed companies to disclose a separate statement of management commentary, an OFR. In November 2005 the Chancellor unexpectedly and controversially announced the repeal of the OFR during a speech to the largest business lobbying group in the UK.

Design/methodology/approach

The analysis draws upon internal, private governmental documents prepared by the Treasury ministry to brief the Chancellor, publicly disclosed as a result of a legal challenge against the repeal decision.

Findings

The paper describes how Treasury officials were motivated to seek deregulatory opportunities in order to gain political support for their head, Prime Minister-in-waiting, Gordon Brown. The analysis reveals how the repeal of the OFR was identified as an example of corporate deregulation, and how this perception proved to be misplaced following the reaction to the repeal decision which led to the government reinstating many OFR requirements in an enhanced Business Review in 2006.

Originality/value

The paper draws on the conception of “3-D” power to analyse how a political ideology prevalent in the pre-financial crisis environment came to influence accounting technology with unexpected consequences. Using data rarely disclosed in the public domain, it illuminates the “black boxed” processes underlying regulatory decision making. The paper details how the Treasury were politically motivated to influence corporate reporting policy in the absence of concerted political lobbying, and why this episode of government intervention led to an unanticipated regulatory outcome.

Details

Accounting, Auditing & Accountability Journal, vol. 27 no. 4
Type: Research Article
ISSN: 0951-3574

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Article

Xin Yu and Ying Zheng

The purpose of this paper is to examine whether the political connections of listed firms in China affect how the market reacts to cases of financial misrepresentation…

Abstract

Purpose

The purpose of this paper is to examine whether the political connections of listed firms in China affect how the market reacts to cases of financial misrepresentation investigated by the regulatory authorities.

Design/methodology/approach

The authors use an event study method and the financial misrepresentation events in China stock markets as research setting and empirically test the association between market reactions to the announcement of financial misrepresentations and the presence of political connections.

Findings

The results show that on average, there is no significant market reaction to financial misrepresentation for politically connected firms. In contrast, however, there is a significantly negative market reaction for non-connected firms, which suggests that investors do not punish politically connected firms for financial misrepresentation. The authors argue that politically connected companies use the altered financial information to gain legitimacy and obtain benefits from the government. Consistent with the argument, the authors find that in the years after they disclose their financial misrepresentation, firms with political connections are more likely to increase their bank loans than firms without political connections.

Originality/value

The authors provide a new explanation for the low-earnings quality of politically connected firms.

Details

Accounting Research Journal, vol. 33 no. 1
Type: Research Article
ISSN: 1030-9616

Keywords

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Article

Kareen Brown, Fayez A. Elayan, Jingyu Li and Zhefeng Liu

The purpose of this paper is to investigate whether US regulatory actions around reverse mergers (RM) have exerted any spillover effects on the Chinese firms listed in…

Abstract

Purpose

The purpose of this paper is to investigate whether US regulatory actions around reverse mergers (RM) have exerted any spillover effects on the Chinese firms listed in China and whether Chinese firms have exhibited lower financial reporting quality than their US counterparts.

Design/methodology/approach

To test the possible spillover effect, this paper calculates three-day cumulative average abnormal returns (CAAR) and the aggregate CAAR for a series of US regulatory actions in 2010 and 2011. The study then compares the accrual quality, conditional conservatism, and information content of accruals of Chinese firms and US firms.

Findings

The paper documents a spillover effect of US actions around RM on Chinese stocks listed in China. Overall results do not support the perception that Chinese firms have lower financial reporting quality than their US counterparts.

Research limitations/implications

While this study provides evidence consistent with investors perceiving poor financial reporting quality among Chinese firms, that perception is not justified by empirical evidence.

Practical implications

Investors need not be overly concerned about the financial reporting quality among the Chinese firms when they make asset allocation decisions.

Social implications

A reality check is important given that perceptions may be outdated, biased, misleading, and costly.

Originality/value

This study puts the financial reporting quality of Chinese firms into perspective helping global investors assess information risk for optimal resource allocation.

Details

China Finance Review International, vol. 8 no. 4
Type: Research Article
ISSN: 2044-1398

Keywords

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Book part

Joan DiSalvio and Nina T. Dorata

This study investigates the reaction to the Securities and Exchange Commission’s (SEC) 2010 interpretative guidance on climate risk disclosures. Issued on February 8…

Abstract

This study investigates the reaction to the Securities and Exchange Commission’s (SEC) 2010 interpretative guidance on climate risk disclosures. Issued on February 8, 2010, the release represents one of the few examples of authoritative requirements for environmental disclosure in filers’ 10-K reports. As such, we attempt to determine the effect of the new requirement on companies’ disclosures as well as how the market reacted to the guidance announcement. Based on a sample of 155 large companies drawn randomly from the Fortune 500, we find first, that, as expected, climate change disclosures increased significantly following the release, but overall, the information provision remained quite limited. We further find that, presumably as intended, companies from industries facing greater climate change exposures exhibited significantly larger increases in disclosure (controlling for prior levels of information provision). Finally, we document that the market reaction to the release of the SEC guidance was significantly positive and driven by more positive returns from firms in climate risk industries. We interpret these unexpected findings as potentially being due to investors believing the new requirements were less demanding than might have been anticipated or that they believe firms facing climate risks were in a better position to respond than other companies.

Details

Accounting for the Environment: More Talk and Little Progress
Type: Book
ISBN: 978-1-78190-303-2

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Article

Mika Veli-Pekka Viljanen

– The purpose of this paper is to aid understanding of the changes in Basel Committee on Banking Supervision (BCBS) regulatory strategies after the global financial crisis.

Abstract

Purpose

The purpose of this paper is to aid understanding of the changes in Basel Committee on Banking Supervision (BCBS) regulatory strategies after the global financial crisis.

Design/methodology/approach

The author uses the credit valuation adjustment (CVA) charge reform as a test case for inquiring whether BCBS has departed from its pre-crisis facilitative regulatory strategy path. The regulatory strategy of the CVA charge is discussed.

Findings

The charge exhibits a new regulatory strategy that BCBS has adopted. It seeks to manipulate market structures by imposing risk-insensitive capital charge methodologies.

Originality/value

The paper offers a new heuristic to analyse regulatory initiatives and their significance. The CVA charge has not been subject to a regulatory theory-based analysis in prior literature.

Details

Journal of Financial Regulation and Compliance, vol. 23 no. 3
Type: Research Article
ISSN: 1358-1988

Keywords

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