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1 – 10 of 215Albulena Shala, Peterson K. Ozili and Skender Ahmeti
This study examines the impact of competition and concentration on bank income smoothing in Central and Eastern European (CEE) countries.
Abstract
Purpose
This study examines the impact of competition and concentration on bank income smoothing in Central and Eastern European (CEE) countries.
Design/methodology/approach
The two-step system GMM method was used to analyse the impact of competition and concentration on bank income smoothing in 17 CEEs from 2004 to 2015.
Findings
Loan loss provisions (LLPs) are negatively related to bank competition and concentration. The authors find no evidence for income smoothing using LLPs in a high-competition or high-concentration environment.
Research limitations/implications
A limitation of the study is that the analysis was restricted to commercial banks. The authors did not examine investment banks or microfinance banks in this study. Also, not having access to databases does not allow them to include recent years in the study.
Practical implications
CEE commercial banks will likely keep fewer provisions or engage in under-provisioning when they face intense competition, and this can expose them to credit risk, which may threaten their stability.
Originality/value
This study is the first to investigate the effect of concentration and competition on income smoothing among CEE banks.
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Sarit Biswas, Sharad Nath Bhattacharya, Justin Y. Jin, Mousumi Bhattacharya and Pradip H. Sadarangani
This paper empirically investigates whether trade openness (TO) in Brazil, Russia, India, China and South Africa (BRICS) countries affects how banks might employ loan loss…
Abstract
Purpose
This paper empirically investigates whether trade openness (TO) in Brazil, Russia, India, China and South Africa (BRICS) countries affects how banks might employ loan loss provisions (LLPs) to smooth out their earnings and how adopting the International Financial Reporting Standards (IFRS) can mitigate it.
Design/methodology/approach
The analysis includes 78 commercial banks from five BRICS nations and spans 2014 through 2020. To test these hypotheses, the authors utilized a fixed-effect and two-step system panel generalized methods of moments (GMM) estimator.
Findings
TO positively affects income smoothing (earnings management) across BRICS commercial banks. The effect is clearer in banks that make financial reports under the IFRS. Path analysis reveals that the effect of TO is driven by nonperforming loans (NPLs). Additionally, the IFRS restricts earnings management in the BRICS banking sector when a better institutional environment is present. The authors found that accounting rules (IFRS) and enforcement (better institutional settings) interact to enhance earnings’ quality.
Practical implications
The relationship between TO and bank earnings management practices is important for understanding the complex interplay between trade and finance and ensuring financial stability, investor confidence and regulatory compliance. This study recommends better regulations and governance mechanisms for financial reports in emerging nations like BRICS. Additionally, macro-prudential regulators and banking supervisors should work closely to ensure transparent TO decisions with improved discipline, institutional quality and regulatory support to enhance bank stability.
Originality/value
The study finds evidence of bank income smoothing in the BRICS and introduces TO as a determinant. It also identifies the evolving role of IFRS in the presence of higher institutional quality and TO, thereby expanding the financial reporting literature.
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Using cross-country data on the 1,000 largest global banks for 2019, the paper aims to examine the response of bank risk and returns to the pandemic.
Abstract
Purpose
Using cross-country data on the 1,000 largest global banks for 2019, the paper aims to examine the response of bank risk and returns to the pandemic.
Design/methodology/approach
The author employs weighted least squares (WLS) techniques for the purposes of analysis.
Findings
The findings suggest that banks with Islamic windows increased their riskiness in response to the pandemic, although there was not much impact on profitability. Additionally, the author categorizes banks based on certain major characteristics and find that these findings are manifest primarily for well-capitalized and less liquid banks.
Originality/value
Research as to the impact of the pandemic on banks' balance sheets has been an unaddressed area of research. By focusing on a large sample of banks across countries with both Islamic and conventional banking presence, the analysis sheds light on the balance sheet response of banks to the pandemic, an aspect that has not been addressed earlier.
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Abdulai Agbaje Salami and Ahmad Bukola Uthman
This study empirically tests the use of loan loss provisions (LLPs) for earnings and capital smoothing when emphasis is laid on banks' riskiness and adoption of the International…
Abstract
Purpose
This study empirically tests the use of loan loss provisions (LLPs) for earnings and capital smoothing when emphasis is laid on banks' riskiness and adoption of the International Financial Reporting Standards (IFRSs) in Nigeria.
Design/methodology/approach
Annual bank-level data are hand-extracted between 2007 and 2017 from annual reports of a sample 16 deposit money banks (DMBs), and analysed using appropriate panel regression models subsequent to a number of diagnostic tests including heteroscedasticity, autocorrelation and cross-sectional dependence. The use of both reported LLPs (TLLP) and discretionary LLPs (DLLP) for earnings and capital management is tested to advance the practice in the literature.
Findings
Generally, the study finds that Nigerian DMBs manage capital via LLPs, while mixed results are obtained for earnings smoothing. However, during IFRS, Nigerian DMBs' management of capital is identifiable with TLLP, while smoothing of earnings is peculiar to DLLP. Additionally, evidence of the improvement in loan loss reporting quality expected during IFRS for riskier Nigerian DMBs, could not be attained. This is corroborated by the study's findings of the use of both TLLP and DLLP for earnings and capital management during IFRS by DMBs in solvency crisis against the only use of TLLP to manage capital found for the entire period.
Practical implications
The evidential capital and earnings lopsidedness may subject Nigerian DMBs' going-concern to a lot of questions.
Originality/value
The study sets a foremost record in the empirical test of managerial opportunistic behaviour embedded in earnings and capital concurrently while accounting for loan losses by all categories of Nigerian DMBs in terms of riskiness, following accounting regime change.
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Fernanda Cigainski Lisbinski and Heloisa Lee Burnquist
This article aims to investigate how institutional characteristics affect the level of financial development of economies collectively and compare between developed and…
Abstract
Purpose
This article aims to investigate how institutional characteristics affect the level of financial development of economies collectively and compare between developed and undeveloped economies.
Design/methodology/approach
A dynamic panel with 131 countries, including developed and developing ones, was utilized; the estimators of the generalized method of moments system (GMM system) model were selected because they have econometric characteristics more suitable for analysis, providing superior statistical precision compared to traditional linear estimation methods.
Findings
The results from the full panel suggest that concrete and well-defined institutions are important for financial development, confirming previous research, with a more limited scope than the present work.
Research limitations/implications
Limitations of this research include the availability of data for all countries worldwide, which would make the research broader and more complete.
Originality/value
A panel of countries was used, divided into developed and developing countries, to analyze the impact of institutional variables on the financial development of these countries, which is one of the differentiators of this work. Another differentiator of this research is the presentation of estimates in six different configurations, with emphasis on the GMM system model in one and two steps, allowing for comparison between results.
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Antonia Patrizia Iannuzzi, Stefano Dell’Atti, Elisabetta D'Apolito and Simona Galletta
Based on the agency and resource dependence theories, this study aims to investigate whether nomination committee (NC) characteristics could serve as key attributes for reducing…
Abstract
Purpose
Based on the agency and resource dependence theories, this study aims to investigate whether nomination committee (NC) characteristics could serve as key attributes for reducing environmental, social and governance (ESG) disputes and whether NC composition affects the appointment of ESG-friendly directors to the board.
Design/methodology/approach
This study focuses on a sample of 30 global systemically important banks from 2015 to 2021. The authors estimate panel data models with fixed effects, clustering heteroskedastic standard errors at the bank level to account for the serial correlation of the dependent variables for each bank.
Findings
Banks’ exposure to ESG controversies can be reduced when NC members have specific skills, in particular when at least one member of this committee also belongs to the sustainability committee and is a foreign director. Moreover, banks’ ESG disputes decrease when the NC members are younger, while the share of independent NC members has a negative impact. Finally, a positive influence of NC composition and its members’ features as well as the appointment of ESG-friendly directors on the board is found.
Originality/value
The findings are particularly useful during periods such as the current one, when there is growing attention to both banks’ corporate governance, the subcommittees’ role and functioning and social and environmental issues. This study shows that the NC is important in reducing the likelihood of banks incurring ESG disputes and in appointing more ESG-friendly directors. NC effective functioning and its members’ qualities serve as a key attribute for fulfilling objective assessment and improving board effectiveness.
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Jaewon Choi and Jieun Lee
The authors estimate systemic risk in the Korean economy using the econometric measures of commonality and connectedness applied to stock returns. To assess potential systemic…
Abstract
The authors estimate systemic risk in the Korean economy using the econometric measures of commonality and connectedness applied to stock returns. To assess potential systemic risk concerns arising from the high concentration of the economy in large business groups and a few export-oriented sectors, the authors perform three levels of estimation using individual stocks, business groups, and industry returns. The results show that the measures perform well over the study’s sample period by indicating heightened levels of commonality and interconnectedness during crisis periods. In out-of-sample tests, the measures can predict future losses in the stock market during the crises. The authors also provide the recent readings of their measures at the market, chaebol, and industry levels. Although the measures indicate systemic risk is not a major concern in Korea, as they tend to be at the lowest level since 1998, there is an increasing trend in commonality and connectedness since 2017. Samsung and SK exhibit increasing degrees of commonality and connectedness, perhaps because of their heavy dependence on a few major member firms. Commonality in the finance industry has not subsided since the financial crisis, suggesting that systemic risk is still a concern in the banking sector.
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While previous literature has emphasized the causal relationship from liquidity to capital, the impact of interbank network characteristics on this relationship remains unclear…
Abstract
Purpose
While previous literature has emphasized the causal relationship from liquidity to capital, the impact of interbank network characteristics on this relationship remains unclear. By applying the interbank network simulation, this paper aims to examine whether the causal relationship between capital and liquidity is influenced by bank positions in the interbank network.
Design/methodology/approach
Using the sample of 506 commercial banks established in 28 European countries from 2001 to 2013, the author adopts the generalized method of moments simultaneous equations approach to investigate whether interbank network characteristics influence the causal relationship between bank capital and liquidity.
Findings
Drawing on a sample of commercial banks from 28 European countries, this study suggests that the interconnectedness of banks within interbank loan and deposit networks shapes their decisions to establish higher or lower regulatory capital ratios in the face of increased illiquidity. These findings support the implementation of minimum liquidity ratios alongside capital ratios, as advocated by the Basel Committee on Banking Regulation and Supervision. In addition, the paper underscores the importance of regulatory authorities considering the network characteristics of banks in their oversight and decision-making processes.
Originality/value
This paper makes a valuable contribution to the current body of research by examining the influence of interbank network characteristics on the relationship between a bank’s capital and liquidity. The findings provide insights that add to the ongoing discourse on regulatory frameworks and emphasize the necessity of customized approaches that consider the varied interbank network positions of banks.
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Asa Malmstrom Rognes and Mats Larsson
The purpose of this study is to examine whether regulations can prevent financial crises based on the case of Sweden in the 20th century. The evolution of banking regulation…
Abstract
Purpose
The purpose of this study is to examine whether regulations can prevent financial crises based on the case of Sweden in the 20th century. The evolution of banking regulation relies heavily on learning across borders as well as responding to recent and remembered crises. Sweden went from being an open economy with a highly protected national banking system with several banking crises under the Classical regime, through the Statist regime with no crises followed by abrupt liberalisation in the 1980s as the country changed to a more market-based regime. This study examines the regulatory responses to crises in each of these periods to assess how, and whether, an often backward-looking regulatory framework can address forward-looking risks.
Design/methodology/approach
This study is a qualitative study using a historical method. The authors use archival material, official publications and statistical data as well as secondary literature to succinctly analyse crises and regulatory responses in different regulatory regimes in the 20th century. The theoretical framework builds on three macro- and microeconomic policy regimes, the Classical, the Statist and the Market regime.
Findings
The authors find that regulations can play a decisive role in alleviating a banking crisis, but the relationship between regulations and economic development is complex, and regulations alone cannot prevent a crisis.
Originality/value
To the best of the authors’ knowledge, this is the first longitudinal study of banking regulations in Sweden and how these change in response to crises with the aim of improving the role of banks in financial intermediation and financial stability. This study contributes to a body of literature on financial crises with a long-term perspective and an assessment of regulations as a policy response.
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Małgorzata Iwanicz-Drozdowska, Łukasz Kurowski and Bartosz Witkowski
This paper aims to evaluate the role of depositor-specific features in a bank resolution. As the resolution framework in the EU is rather new, there are no empirical studies…
Abstract
Purpose
This paper aims to evaluate the role of depositor-specific features in a bank resolution. As the resolution framework in the EU is rather new, there are no empirical studies referring to the efficiency of this mechanism in protecting financial stability. Thus, the authors have checked the role of societal awareness of deposit guarantee schemes and the resolution, as well as the trust in public institutions, in avoiding bank runs in the case of resolution scenarios.
Design/methodology/approach
The study is based on telephone interviews conducted with 1,000 Poles, including bank customers whose banks have undergone resolution in recent years, and basic statistics of the resolved banks. The authors then apply two classes of models: binary probit regression and ordered probit regression.
Findings
The findings have indicated that the trust in public institutions and the experience gained with age play a key role in overall depositor behaviour. However, for resolutions, declared trust is replaced by case-specific trust based on the obtained information.
Research limitations/implications
The survey is based on a sample of Polish citizens. In the future, international surveys may help diagnose cross-country differences among depositors. Moreover, studies on communication approaches may also support finding highly effective ways to reach various cohorts of depositors.
Originality/value
The existing literature on depositor behaviour in bank failure scenarios has relied on an experimental approach to test various research hypotheses. The research sample is not based on an experiment but on the responses of customers whose banks have actually undergone resolution.
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