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1 – 10 of over 117000Lalit Arora, Shailendra Kumar and Piyush Verma
Today, firm performance must be measured not only on traditional metrics but also on those that reflect the changing imperatives and new metric knowledge. Thus, the focus of…
Abstract
Today, firm performance must be measured not only on traditional metrics but also on those that reflect the changing imperatives and new metric knowledge. Thus, the focus of managers, investors, and researchers is shifting from rubrics like sales and profitability to growth as a more appropriate measure of firm performance. We aim to highlight the effects that growth of a firm can have on the level of its systematic risk. Using a sample of 203 firms across nine industries taken from the Indian manufacturing sector for a period of 17 years (1998–2014), we develop and test a panel vector autoregressive (VAR) model to analyze the causal relationship between growth aspects and systematic risk of firms. Results depict that a growth option available to firms increase their level of systematic risk and the risk decreases when firms start chasing this growth by increasing their assets in place. Sustainable growth rate, which depicts the growth potential of firms, plays an important role in reducing the level of systematic risk. The findings of this chapter are relevant to managers who think that growth is always beneficial.
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This study aims to analyze bank lending behavior before and during the most recent financial crisis. Banks are more willing to grant loans during economic expansion. However, this…
Abstract
Purpose
This study aims to analyze bank lending behavior before and during the most recent financial crisis. Banks are more willing to grant loans during economic expansion. However, this behavior can result in reduced portfolio asset quality. The analysis tries to facilitate understanding of whether this relationship is always true. A second aim of the study is to highlight whether the impact of credit risk on bank lending behavior during a financial crisis is greater for banks that grew faster during the pre-crisis period than for other banks.
Design/methodology/approach
The analysis is based on a sample of banks in Italy, an example of a country undergoing a credit crunch without a lending bubble burst. The methodology is based on a panel regression and author uses different models to test his hypothesis: an ordinary least squares, a fixed effect, a least absolute regression and a Generalized Method of Momentum (GMM). This allows to mitigate some of the endogeneity problems.
Findings
The essay shows that effectively, most of the banks that grew faster during a pre-crisis period show a higher growth of non-performing loans and a greater reduction in lending activity during a financial crisis. However, 34 per cent of banks that grew faster during a pre-crisis period have a low growth of non-performing loans in the subsequent years. Finally, the results suggest that credit risk negatively affects bank lending behavior, but a higher impact relative to fast banks with respect to other banks cannot be emphasized.
Practical implications
Findings have some policy implications. First, given the adverse effect of the increase of non-performing loans (NPLs) on the bank’s lending activity and on the broad economy in general, there is merit to strengthen supervision to prevent a further increase and accumulation of NPLs in the bank’s credit portfolio. In addition, the supervisors could require that banks take always high credit standard when extend credit, both during positive economic cycle and during period of contraction. The using of higher credit standard could be helpful in the reduction of the pro-cyclicality of bank’s lending behavior and credit risk. Furthermore, the fact that high level of NPLs continues to impact on the bank’s lending activity and that this activity is very important for the economic recovery underlines that banks should clean-up their credit portfolios as soon as possible.
Originality/value
This paper contributes to the literature in various ways. The study analyzes the cyclical effect of credit growth, i.e. banks increase their bank lending behavior during good times, which leads to an increase in bad loans and a high credit risk in their portfolio. These cyclical effects are not knowingly studied together, but the literature usually analyzes the single steps of the cycle. Second, studying listed and unlisted banks allows to have a more representative sample and to analyze better the real bank lending activity considering both commercial than cooperative banks.
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Sofie Pelsmakers, Evy Vereecken, Miimu Airaksinen and Cliff C.A. Elwell
Millions of properties have suspended timber ground floors globally, with around ten million in the UK alone. However, it is unknown what the floor void conditions are, nor the…
Abstract
Purpose
Millions of properties have suspended timber ground floors globally, with around ten million in the UK alone. However, it is unknown what the floor void conditions are, nor the effect of insulating such floors. Upgrading floors changes the void conditions, which might increase or decrease moisture build-up and mould and fungal growth. The purpose of this paper is to provide a review of the current global evidence and present the results of in situ monitoring of 15 UK floor voids.
Design/methodology/approach
An extensive literature review on the moisture behaviour in both uninsulated and insulated suspended timber crawl spaces is supplemented with primary data of a monitoring campaign during different periods between 2012 and 2015. Air temperature and relative humidity sensors were placed in different floor void locations. Where possible, crawl spaces were visually inspected.
Findings
Comparison of void conditions to mould growth thresholds highlights that a large number of monitored floor voids might exceed the critical ranges for mould growth, leading to potential occupant health impacts if mould spores transfer into living spaces above. A direct comparison could not be made between insulated and uninsulated floors in the sample due to non-random sampling and because the insulated floors included historically damp floors. The study also highlighted that long-term monitoring over all seasons and high-resolution monitoring and inspection are required; conditions in one location are not representative of conditions in other locations.
Originality/value
This study presents the largest UK sample of monitored floors, evaluated using a review of current evidence and comparison with literature thresholds.
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Joseph Calandro and Robert Flynn
Many insurance companies vigorously pursue top‐line growth, even though it has the potential to develop unprofitably over time. The time lag (or tail) between when insurance is…
Abstract
Purpose
Many insurance companies vigorously pursue top‐line growth, even though it has the potential to develop unprofitably over time. The time lag (or tail) between when insurance is sold and when claims are paid generates risks unique to insurance companies. Furthermore, the insurance market is both mature and efficient (i.e. its level of competitive risk is very high), which means that profitable opportunities are both rare and untenable unless protected by competitive advantage. There is currently no practical measure available (of which the authors are aware) at the business unit level to evaluate insurance premium growth in the face of the industry's risks, impairing executives' ability to assess segment opportunities (and hazards), thus hampering strategic decision making. The purpose of this paper is to introduce a practical measure developed by the authors called Underwriting Return (UWR) which aims at helping to alleviate this situation.
Design/methodology/approach
The paper introduces UWR which was developed during the course and scope of the authors' work in the insurance industry, and their research into applying value‐based management to that industry.
Findings
The paper finds that UWR is a practical measure that property and casualty executives can use at the business unit level to help quantify market segments to grow, hold, harvest and abandon.
Originality/value
A variety of strategic analysis tools, such as the popular Boston Consulting Group matrix, are utilized today. In general, the application of such tools is hampered by an imprecision of measurement but each can add a level of insight to executives' resource allocation options. UWR can further aid insurance executives in strategic analysis by helping to quantify in which segments to compete, and which ones to abandon. The paper demonstrates the utility of the measure in an example based on an actual analysis.
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George W. Blazenko and Yufen Fu
The value‐premium is the empirical observation that “value” stocks (low market/book) have higher returns than “growth” stocks (high market/book). The purpose of this paper is to…
Abstract
Purpose
The value‐premium is the empirical observation that “value” stocks (low market/book) have higher returns than “growth” stocks (high market/book). The purpose of this paper is to propose a new explanation for the value‐premium that the authors call the limits to growth hypothesis.
Design/methodology/approach
To guide the testing, a dynamic equity valuation model was used that has the property that profitability increases risk for value firms in anticipation of future growth‐leverage, whereas, profitability “covers” the capital expenditure costs of growth, which decreases risk for growth firms. Because the authors interpret dividends as a corporate response to growth‐limits, they test for this predicted differential relation between profitability and risk for value versus growth stocks with the returns of profitable dividend‐paying firms.
Findings
It is found that profitability increases returns to a greater extent for dividend‐paying value firms compared to dividend‐paying growth firms, which is consistent with a differential relation between profitability and risk. At the same time, it is also found that growth firms have lower returns than value firms.
Originality/value
The authors use the limits‐to‐growth hypothesis to explain why profitability can either increase or decrease risk. High‐profitability dividend‐paying growth firms have lower returns than low‐profitability dividend‐paying value firms. This value‐premium is consistent with the argument that high profitability “covers” the capital expenditure costs of growth, which decreases risk and, thus, returns. At the same time, profitability increases returns to a greater extent for value stocks compared to growth stocks, which is consistent with the hypothesis that profitability increases risk for value firms in anticipation of future growth‐leverage.
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What causes the downward trend of real interest rates in major developed economies since the 1980s? What are the challenges of the near-zero interest and inflation rates for…
Abstract
Purpose
What causes the downward trend of real interest rates in major developed economies since the 1980s? What are the challenges of the near-zero interest and inflation rates for monetary policy? What can the policymakers learn from the latest developments in the monetary and interest rate theory? This paper aims to answer these questions by reviewing both basic principles of interest rate determination and recent academic and policy debates.
Design/methodology/approach
The paper critically reviews the explanations for the downward trend of real interest rates in recent decades and monetary policy options in a near-zero interest rate environment.
Findings
The decline of real interest rates is likely an outcome of multiple technological, social and economic factors including diminished productivity growth, changing demographics, elevated tail-risk concerns, time-varying convenience yields of safe assets, increased global demand for safe assets, rising wealth and income inequality, falling relative price of capital, accommodative monetary policies, and changes in industry structure that alter the investment and saving behaviors of the corporate sector. The near-zero interest rate limits the space of central banks' response to economic crises. It also challenges some conventional wisdoms of monetary theory and sparks radically new ideas about monetary policy.
Originality/value
This survey differs from the existing work by taking a broader view of both economics and finance literature. It critically assesses the economic forces driving the global decline of real interest rates through the lens of basic principles and empirical evidence and discusses the merits and limitations of each proposed explanation. The study emphasizes the importance of a better understanding of economic forces driving diverging trends of corporate investment and saving behaviors. It also discusses the implications of the neo-Fisherism and the fiscal theory of price level for monetary policy in a low interest rate environment.
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The purpose of this study is to analyze the business-failure-process risk from two perspectives. First, a simplified model of the loss-generation process in a failing firm is…
Abstract
Purpose
The purpose of this study is to analyze the business-failure-process risk from two perspectives. First, a simplified model of the loss-generation process in a failing firm is developed to show that the linear system embedded in accounting makes financial ratios to depend linearly on each other. Second, a simplified model of the development of the risk during the failure process is developed to introduce a new concept of failure-process-risk line (FPRL) to assess the systematic failure risk of a firm. Empirical evidence from Finnish firms is used to test two hypotheses.
Design/methodology/approach
This study makes use of simple mathematical modeling to depict the loss-generation process and the development of failure risk during the failure process. Hypotheses are extracted from the mathematical results for empirical testing. Time-series data originally from 13,082 non-failing and 515 failing Finnish are used to test the hypotheses. Analysis of variance F statistics and Mann–Whitney U test are used in testing of the hypotheses.
Findings
The findings show that the linear time-series correlations are generally higher in failing than in non-failing firms because of the loss-generation process. The FPRL depicted efficiently the systematic failure-process risk through the beta coefficient. Beta coefficient efficiently discriminated between failing and non-failing firms. The difference between the last-period risk estimate and FPRL was largely determined by the approximated growth rate of the periodic failure risk.
Research limitations/implications
The loss-generation process is based on a simple cash-based approach ignoring the growth of the firm. In future research, the model could be generalized to a growing firm in an accrual-based framework. The failure-process risk is assumed to grow at a constant rate. In further studies, more general models could be applied. Empirical analyses are based on simple statistical methods and tests. More advanced methods could be used to analyze the data.
Practical implications
This study shows that failure process makes the time-series correlation between financial ratios to increase making their signals of failure consistent and allowing the use of static classification models to assess failure risk. The beta coefficient is a useful tool to reflect systematic failure-process risk. In addition, it can be used in practice to warn a firm about ongoing failure process.
Originality/value
To the best of the author’s knowledge, this is the first study analyzing systematically business-failure-process risk. It is first in introducing a mathematical loss-generation process and the FPRL based on the beta coefficient assessing the systematic failure risk.
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Valentina N. Parakhina, Galina V. Vorontsova, Oksana N. Momotova, Olga A. Boris and Rustam M. Ustaev
This chapter studies the importance of implementation of innovational projects of technological growth through public–private partnership (PPP). The authors determine the…
Abstract
This chapter studies the importance of implementation of innovational projects of technological growth through public–private partnership (PPP). The authors determine the probability of implementing a project of PPP depending on distribution of risks between its participants. Usage of the mechanism of PPP allows optimizing possible risks during implementation of innovational activities, attracting large business for creation and implementation of new technologies, and forming sustainable ties between R&D departments and business structures. The types of risks in the projects of PPP are given, as well as tendencies of their emergence depending on the stage of implementation of the innovational project, including the following: formation of policy on development of PPP; preparatory, implementary, commercialization of the results of joint activities; and monitoring and control over execution of the project. The algorithm of the system of risk management in innovational projects of technological growth on the platform of PPP is presented. The methods of overcoming the risks that appear during implementation of an innovational project of technological growth within PPP are given. A special attention should be paid to the fourth (distribution of risks) and fifth (reduction of risks) stages. During implementation of innovational projects with application of a business model of PPP, the risks are dealt with by the participant who can manage them better. Reduction of risks is achieved better if several strategies are used – for decreasing the influence of the risk on the innovational project (strategies of risk evasion, acceptance of the risk situation, compensation, transfer, and reduction).
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Andrew E. Baum and Bryan D. MacGregor
Starts from the basic principles of property investment and showsthat the initial yield conceals estimates of a risk premium, expectedincome growth and expected depreciation…
Abstract
Starts from the basic principles of property investment and shows that the initial yield conceals estimates of a risk premium, expected income growth and expected depreciation. Suggests that an explicit valuation procedure which can be used at any level ranging from a single property to the aggregate market may be constructed. Concludes that the surveying profession is under threat from those able to meet the growing demand for such explicit analyses.
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Muhammad Fuad Farooqi and John O’Brien
This paper aims to provide a comparative study of the Islamic versus conventional banking sector risk by using market data generated from the sample of publicly listed Islamic and…
Abstract
Purpose
This paper aims to provide a comparative study of the Islamic versus conventional banking sector risk by using market data generated from the sample of publicly listed Islamic and conventional banks in the Gulf Cooperation Council (GCC) region.
Design/methodology/approach
The authors introduce a market-based measure of bank stress and test this indicator against the Tier 1 Capital Ratio using Granger causality tests.
Findings
The authors find that the market-based measure is a leading indicator of banking stress when compared to the accounting-based Tier 1 ratio and thus is relevant to the Basel regulation’s Pillar 3.
Research limitations/implications
This paper only looks at Islamic vs conventional banks in the Gulf region, and the authors would like to extend this analysis to a broader range of financial institutions, especially in the European and North American markets.
Social implications
Developing a measure that signals bank stress ahead of typically used measures can help regulators, bank management and investors identify oncoming problems and issues before these become too big to manage.
Originality/value
The results from this analysis provides insight into the offsetting impact from two drivers (beta and book-to-market ratio) of the cost of equity capital for the conventional vs Islamic banking sectors.
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