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1 – 10 of over 37000Changjun Zheng, Tinghua Xu and Wanxia Liang
In order to improve banks' ability to fight against risks, China's financial regulatory authorities refer to the Basel Accord, and bank capital adequacy ratio is taken as an…
Abstract
Purpose
In order to improve banks' ability to fight against risks, China's financial regulatory authorities refer to the Basel Accord, and bank capital adequacy ratio is taken as an important means of control. The purpose of this paper is to investigate the internal mechanism between capital buffers and risk adjustment.
Design/methodology/approach
Based on the dynamic characteristics of a bank's continuing operations, the authors established an unbalanced panel of China's commercial bank balance‐sheet data from 1991 to 2009 and used the Generalized Method of Moments to examine the relationship between short‐term capital buffer and portfolio risk adjustments.
Findings
The authors' estimations show that the relationship between capital and risk adjustments for well capitalized banks is positive, indicating that they maintain their target level of capital by increasing (decreasing) risk when capital increases (decreases). In contrast, for banks with capital buffers approaching the minimum capital requirement, the relationship between adjustments in capital and risk is negative. That is, low capital banks either increase their buffers by reducing their risk, or gamble for resurrection by taking more risk as a means to rebuild the buffer. Moreover, the authors' estimations show that the management of short‐term adjustments in capital and risk is dependent on the size of the capital buffer.
Research limitations/implications
From the current research documents, there are few empirical researches on capital buffers and risk adjustment, and the research sample time limits of current papers are a little earlier. The researches did not reflect China's commercial banks' capital buffer and risk adjustment after the new Basel Accord.
Practical implications
Banks' adjustment speed of target level depends on the size of capital buffer, proving that the speed of adjusting capital buffer of banks with smaller capital buffer is significantly faster than their counterparts with larger capital buffers.
Originality/value
The paper uses the dynamic feature of banks' lasting operations as the logical starting point, which is ignored by the current researches, and investigates the internal mechanism between capital buffers and risk adjustment.
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Muhammad Sarfraz, Qasim Ali Nisar and Ali Raza
Drawing upon the social exchange and psychological capital literature and applying a multilevel perspective, this paper examines how personal and organizational factors contribute…
Abstract
Purpose
Drawing upon the social exchange and psychological capital literature and applying a multilevel perspective, this paper examines how personal and organizational factors contribute to expatriates' adjustment and performance of international assignments in a terrorism-induced risky environment.
Design/methodology/approach
Data were collected using a non-probability sampling approach (e.g. purposive and subsequent snowball sampling). The authors tested the hypotheses using survey data of 138 expatriates with current international assignments in Pakistan.
Findings
Expatriates' perceived organizational and risk-taking propensity influences their performance through improved adjustment. Moderating effects suggest that an individual's satisfaction with the received organizational rewards strengthens the risk-taking propensity to adjustment relationship; resilience strengthens the adjustment to performance relationship.
Originality/value
This study extends existing expatriation literature by focusing on a specific type of risk factor pertinent to international assignments, i.e. terrorism. Integrating individual and organizational factors that influence adjustment and subsequent performance provides a clear picture rather if such factors are operationalized separately in the terrorism-induced risky environment context.
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Emmanuel Carsamer, Anthony Abbam and Yaw N. Queku
Capital, risk and liquidity are the vitality of the banking industry, which can improve the efficiency of banking and promote the efficiency of resource allocation. The purpose of…
Abstract
Purpose
Capital, risk and liquidity are the vitality of the banking industry, which can improve the efficiency of banking and promote the efficiency of resource allocation. The purpose of this study is to examine how Basel III new liquidity ratios affect bank capital and risk adjustments and how banks respond to the new liquidity rules.
Design/methodology/approach
The authors adopted the system generalized method of moments (GMM) to examine how Basel III new liquidity ratios affect bank capital and risk adjustments and how banks respond to the new liquidity rules. Based on the call reports data from banks, GMM was used to test the hypotheses that new liquidity ratios affect bank capital and risk adjustments, as well as how banks respond to the regulation.
Findings
The results indicate banks targeted capital, risk and liquidity and simultaneously coordinate short-term adjustments in capital and risk. New liquidity measures enable banks to coordinate risk and liquidity decisions. Short-term adjustments in new liquidity rules inversely impact bank capital. Short-term adjustments in new liquidity rules inversely impact bank capital and capital adjustments adversely affect changes in the liquidity coverage ratio (LCR).
Research limitations/implications
The primary results revealed that Ghanaian banks simultaneously coordinate and target capital, risk exposure and liquidity level. Also, capital adjustments positively influence risk adjustments and vice versa while bidirectional negative coordination exists between bank capital and risk on one hand and liquidity on the other hand. Short-term adjustments in new liquidity rule inversely impact bank capital and capital adjustments adversely affect changes in the LCR. The findings partially confirm the theoretical predictions of Repullo (2005) regarding the negative links between capital, risk and liquidity but the authors have higher capital induces higher risk.
Practical implications
Banks should balance off their targeted risk and liquidity in order not to sacrifice capital accumulation for liquidity.
Originality/value
This research offers new contributions in the research of bank management of capital and liquidity toward banks during a financial crisis from a theoretical perspective and trust management from an applicative perspective.
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Joseph Calandro, Scott Lane and Ranganna Dasari
Risk management has grown increasingly popular in recent years due to the recognition that risk should be as actively managed as performance. A key objective of risk management is…
Abstract
Purpose
Risk management has grown increasingly popular in recent years due to the recognition that risk should be as actively managed as performance. A key objective of risk management is to evaluate performance in the context of the relative volatility in which business operations are undertaken. However, accomplishing this has generally proven difficult. This paper aims to present a practical approach for risk‐adjusting performance.
Design/methodology/approach
This paper presents a practical risk‐adjustment methodology that is based on a popular statistical measure. The utility of the approach is demonstrated in two practical examples: the first is an industry example and the second is an M&A example.
Findings
The results of the research suggest that the risk‐adjustment approach presented here could become an important part of both performance management and risk management programs.
Research implications/limitations
The approach detailed in this paper facilitates the practical risk‐adjustment of select performance measures and risk measures. As this is an introductory paper, further research could be conducted on the specifics of the risk‐adjustment process as well as the strategic context in which measures are risk‐adjusted.
Originality/value
This paper introduces a practical approach of risk‐adjusting performance that was inspired by a popular statistical measure, which is demonstrated in two practical examples.
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Lawrence Peter Shao and Alan T. Shao
The purpose of this study is to examine the capital budgeting strategies that are used by foreign subsidiaries of U.S.‐based multinational enterprises. While the results indicated…
Abstract
The purpose of this study is to examine the capital budgeting strategies that are used by foreign subsidiaries of U.S.‐based multinational enterprises. While the results indicated a preference for sophisticated capital budgeting techniques as the primary method of analysis, the actual use of sophisticated capital budgeting techniques by foreign managers may not be as widespread as expected by financial theorists. Although it was found that certain environmental and company‐specific factors influenced the level of sophistication of capital budgeting practices used by U.S. foreign subsidiaries, the associations were small and had only minor explanatory significance. The results showed that foreign subsidiaries exposed to high levels of political and financial risk tended to use sophisticated capital budgeting strategies. Subsidiaries characterized by high levels of financial leverage and high cost of capital requirements also employed advanced capital budgeting strategies. Multinational enterprises (MNEs) have many options available to them in terms of how they manage their foreign subsidiaries. Traditionally, most major policy decisions were made at the parent firm's headquarter office while foreign subsidiaries had few opportunities to influence major corporate decisions. Today, more companies are using a flexible approach which involves setting strategic goals at the home office and allowing local managers to implement their own specific policies. An important question in this study involved determining how effective local foreign managers were in implementing their capital budgeting processes. As U.S.‐based MNEs continue to expand their operations abroad, there is an increased need to examine which financial decision models are actually used by subsidiary managers to deal with the increased complexity of investing in foreign countries. Unlike traditional capital budgeting analysis, international analysis is a considerably more complex process. These complexities occur for a number of reasons including complicated cash flows estimates, changes in foreign exchange rates, different accounting systems, potential for blocked funds, and political risk considerations. These factors are rarely experienced by traditionally domestic U.S. firms. To maintain a competitive edge, MNEs must continue to use the most efficient approaches available to them. This study provides a detailed analysis of the capital budgeting practices that are actually being used by foreign subsidiaries of U.S.‐based MNEs. The paper is organized in the following manner. Section I provides a brief overview of the theoretical and practical issues of international capital budgeting analysis. Section II focuses on the areas of data collection, questionnaire design, and environment‐specific and company‐specific factors. Section III discusses usage of capital budgeting techniques, adjustment and assessment of project risk, and factors influencing capital budgeting policies. The final section presents some findings from this study.
The financial crisis 2007‐2009 calls for a regulatory response. A crucial element of this task is the treatment of systemic risk. Basel III gains centre stage in this process…
Abstract
Purpose
The financial crisis 2007‐2009 calls for a regulatory response. A crucial element of this task is the treatment of systemic risk. Basel III gains centre stage in this process. Thus, the purpose of this paper is to evaluate Basel III, examining its ability to reduce systemic risk.
Design/methodology/approach
The paper highlights the importance of reducing systemic risk to achieve the goal of overall financial stability. By first focusing on the theoretical foundations of systemic risk, this paper explores and analyzes the crucial aspects of this almost impalpable risk type. It further investigates the current regulation of systemic risk, clearly showing Basel II's inability to reduce it. Then, it evaluates the Basel Committee's efforts to address these weaknesses through Basel III by investigating its incentives and its ability to reduce obvious drawbacks of Basel II as well as systemic risk factors.
Findings
The findings show that there are still adjustments necessary. Although the development of Basel III is well advanced, providing some stabilizing incentives, there are still issues calling for closer consideration to counter all Basel II drawbacks and systemic risk factors adequately. These include: a risk‐weighted leverage ratio; a more thorough treatment of procyclicality; adjustments for the NSFR (Net Stable Funding ratio); and most importantly, the mandatory issue to internalize negative externalities from financial institutions, that is, the call for pricing systemic risk.
Originality/value
The paper not only examines the new Basel III framework, as a response to the Financial Crisis 2007‐2009, but also draws attention to specific areas which the Basel Committee and regulators need to focus on more thoroughly.
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Lixin Wu and Chonhong Li
The purpose of this paper is to provide a framework of replication pricing of derivatives and identify funding valuation adjustment (FVA) and credit valuation adjustments (CVA) as…
Abstract
Purpose
The purpose of this paper is to provide a framework of replication pricing of derivatives and identify funding valuation adjustment (FVA) and credit valuation adjustments (CVA) as price components.
Design/methodology/approach
The authors propose the notion of bilateral replication pricing. In the absence of funding cost, it reduces to unilateral replication pricing. The absence of funding costs, it introduces bid–ask spreads.
Findings
The valuation of CVA can be separated from that of FVA, so-called split up. There may be interdependence between FVA and the derivatives value, which then requires a recursive procedure for their numerical solution.
Research limitations/implications
The authors have assume deterministic interest rates, constant CDS rates and loss rates for the CDS. The authors have also not dealt with re-hypothecation risks.
Practical implications
The results of this paper allow user to identify CVA and FVA, and mark to market their derivatives trades according to the recent market standards.
Originality/value
For the first time, a line between the risk-neutral pricing measure and the funding risk premiums is drawn. Also, the notion of bilateral replication pricing extends the unilateral replication pricing.
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Shin-Ming Guo, Tienhua Wu and Yenming J. Chen
This study proposes the use of cumulative prospect theory (CPT) to predict over- and under-estimation of risks and the counteractive adjustment in a cold chain context. In…
Abstract
Purpose
This study proposes the use of cumulative prospect theory (CPT) to predict over- and under-estimation of risks and the counteractive adjustment in a cold chain context. In particular, the purpose of this paper is to address the importance of the socio-demographic characteristics of an individual in influencing risk attitude and the analysis of measurable risk probability.
Design/methodology/approach
This study uses CPT as the basis to develop a decision analysis model in which the two functions of value editing and probability weighting are nonlinear to adequately determine the flexible risk attitudes of individuals, as well as their prospects with numerous outcomes and different probabilities. An experiment was conducted to obtain empirical predictions, and an efficient Markov Chain Monte Carlo algorithm was applied to overcome the nonlinearity and dimensionality in the process of parameter estimation.
Findings
The respondents overweigh the minor cold chain risks with small probabilities and behave in a risk-averse manner, while underweighting major events with larger ones, thereby leading to risk-seeking behavior. Judgment distortion regarding probability was observed under risk decision with a low probability and a high impact. Moreover, the findings indicate that factors, such as gender, job familiarity and confidentiality significantly influence the risk attitudes and subjective probability weighting of the respondents.
Research limitations/implications
The findings fit the framework of CPT and extend this theory to deal with human risk attitudes and subjective bias in cold chains. In particular, this study enhances the literature by providing an analysis of cold chain risk from both the human decision-making and managerial perspectives. Moreover, this research determined the importance of the socio-demographic characteristics of an individual to explain the variability in risk attitudes and responses.
Practical implications
Managers must consider the issues of flexible risk attitude and subjective judgment when making choices for risk mitigation strategies. Given the focus on counteractive adjustment for over- and under-estimated risk, firms could evaluate cold chain risk more accurately, and thereby enhance their resilience to risky events while reducing the variability of their performance.
Originality/value
The current study is the first to materialize the phenomena of over- and under-estimation of cold chain risks, as well as to emphasize the different characteristics for loss aversion and judgment distortion at the individual level.
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– 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.
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