Search results

The purpose of this paper is to explore whether the choice of International Financial Reporting Standards (IFRS) vs Generally Accepted Accounting Principles (GAAP) is associated with the frequency and likelihood of accounting irregularities and fraud in US banks.

The authors examine the relationship between financial reporting standards and accounting irregularities in publicly listed US banks. Using a sample of 4,284 banks with accounting irregularities observed in the USA over the period of 1996–2014. They used logit model to estimate the likelihood of corporate misreporting having been committed in terms of accounting irregularities.

The authors show that banks that use US GAAP exhibit better operating performance than fraudulent banks that use IFRS except for certain variables. They also find that fraudulent banks are more likely to commit accounting irregularities when they have to follow IFRS and banks have relatively better bank performance.

Overall, the empirical findings result consistent with Kohlbeck and Warfield’s (2010) find that accounting standards are linked to fewer accounting irregularities.

In this study, accounting irregularities have a significant effect on bank performance during the Dodd–Frank period. It finds that banks that choose to use IFRS are more likely to have accounting irregularities and to engage in fraud.

Bank securitisation is deemed to have been a major contributing factor to the 2007/2008 financial crises via fuelling credit growth accompanied by lower banks’ credit standards. Yet, prior to the crisis a common view was that securitisation activity makes the financial system more stable as risk was more easily diversified, managed and allocated economy-wide. The purpose of this paper is to review the extant literature to explore the so far generated knowledge on the impact of securitisation on banking risks. In particular, the authors examine the theoretical arguments and empirical studies on securitisation and banking risks before and after the global financial crisis of 2007/2008.

Review and discussion of the literature.

Theoretical literature univocally accentuate the undesirable consequences of securitisation, which may promote retention of riskier loans, undermine banks’ screening and monitoring incentives and enhance banks’ risk appetite. However, empirical evidence does not uniformly support the theoretical conclusions. If banks are securitisation active they lend more to risky borrowers, have less diversified portfolios and hold less capital, retain riskier loans and are aggressive in loan pricing. Others argue that securitisation reduces banks insolvency risk, increases profitability, provides liquidity and leads to greater supply of loans. Mortgage securitisation is an area where there is consistent evidence of bank risk taking via securitisation.

The paper identifies open issues for future research.

The purpose of this paper is to investigate the profitability of European Union (EU) firms with the aim of confirming the mean‐reverting pattern documented by earlier research in the USA. In addition, the paper classifies firms by industry sectors across countries to investigate potential differences.

The paper follows closely a model where the forecasting of profitability is done through year‐by‐year regressions. This approach allows the use of large samples and the year‐by‐year variation in the slopes. Both a linear and a nonlinear partial adjustment models are used for forecasting profitability.

Findings show that the profitability does follow a mean‐reverting process and that profitability forecasting can be improved substantially by exploiting the mean‐reverting feature. Further analysis shows that mean reversion does not play an important role in EU countries as in the USA and there is no evidence of nonlinearity in mean reversion. It was also found that mean‐reverting speed differ across industries, with utilities, financial and manufacturing among the lowest.

The sample companies are not originated from a single economy, but from 15 different countries with different macro‐economic conditions that might influence their profitability.

Studying the European market, where the institutional and financial structure of firms are different from the USA allows us to observe whether the US results are sample specific or can be generalized and applied elsewhere. The difference observed in these sample results is probably due to the fact that the US economy is more competitive than that of EU.

This paper studies the profit efficiency of a sample of large U.S. commercial banks and explores how this performance varies with selected measures of bank risk reflecting aspects of credit risk, liquidity risk, and insolvency risk. We use a standard profit function and the stochastic frontier approach, and compare two standard functional forms – Cobb‐Douglas and translog – to assess the tradeoff between precision and parsimony. We find that profit efficiency is sensitive to credit risk and insolvency risk but not to liquidity risk or to the mix of loan products.

The study aims to identify whether international financial reporting standards (IFRS) or local generally accepted accounting principles (GAAP) reporting provides investors and senior management of acquirer banks with superior information on target banks under post-merger bank performance.

The authors examine the claim that IFRS improves corporate transparency and increases financial reporting quality in European Bank merger and acquisitions (M&As). The authors compare the financial performance of merged banks where the target and acquirer banks employed the same reporting system (up to 305 merged banks) to the performance of a control group of banks not engaged in M&A activity (up to 1,690 European banks).

Local GAAP reporting allows a more transparent assessment of financial performance using traditional indicators, making it a superior tool for assessing potential acquisition targets.

Overall, the empirical findings are consistent with prior studies and indicate a significant relationship between local GAAP and post-merger performance, while IFRS does not contribute to post-merger bank performance.

The study is one of the very few studies to investigate the relationship between bank performance, M&A activity and accounting standards in EU-28 countries. The primary contribution the finding of poor performance of IFRS reporting merged banks compared to local GAAP banks in EU-28 countries in line with prior results of Huian (2012). In addition, several deal- and bank-specific characteristics that affect accounting standards influence M&A transactions in European banks.

Testing the efficiency in the economy has been highly pronounced since the financial crisis in 2008, as many countries have started to deregulate their economic sectors. The potential impact of testing efficiency is thus the key driver of world output and welfare. For this purpose, the main objective of the Capital Market Authority consists of more regulation of securities trading to boost economic efficiency. In particular, the purpose of this paper, is to examine the efficiency of 40 investment companies in Kuwait. In this study, the authors investigate the efficiency in the investment sector in Kuwait. Studying such a case is important for several reasons. First, the investment sector in Kuwait is affected by the World Trade Organization (WTO) conditions and regulations for more market liberalization. Second, most studies on efficiency have focussed on developed countries, such as those of Europe and the USA, with very few studies examining developing countries, such as Kuwait. Third, the study efficiency features is important in helping policy makers evaluate how the investment sector will be affected by increasing competition and then formulate policies that affect that sector and the economy as a whole.

In this study, we use non-parametric data envelopment analysis (DEA) to estimate investment companies’ efficiency in Kuwait. The authors test predictions of the model using yearly data for 2006-2010. In the analysis, the authors follow the two-stage approach suggested by Coelli et al. (1998). In the literature on DEA efficiency score measurement, this two-stage approach is the most prominent. This approach uses the efficiency score, measured by the DEA model, as the dependent variable in a regression model with explanatory variables that are supposed to capture the impact of external factors (Hahn, 2007). In the second stage, the authors used a Tobit model to investigate factors affecting the efficiency in the Kuwaiti investment sector.

The findings of the second stage suggest that 2008-2010 had a negative impact on firms’ efficiency in Kuwait. The results confirm the substantial influence of the 2008 global financial crisis on the investment sector in Kuwait. In addition, the results show that factors affecting production efficiency in the investment sector in Kuwait include the total revenues, total assets, government participation, and Islamic firm dummy. These second-stage results are confirmed using different specifications of a fixed effect model, a random effects model, and a logit model.

The results may be utilized by both monetary authorities and policy makers in establishing the general economic policy in the country. A number of policy implications may be derived from the estimates obtained in the current paper. First, the results show that the investment sector in Kuwait faced a sharp drop in its efficiency in 2008 due to the global financial crisis. This result tells us that there was a spillover effect of the global financial crisis in the Kuwaiti investment market, as companies in this market are highly vulnerable to global shocks. As a result, the investment sector needs to be regulated by, for example, encouraging more company mergers and acquisitions. Second, to meet the appropriate regulations in the investment sector in Kuwait, monetary authority in Kuwait should take into consideration the WTO conditions for more openness in the economic sector. Therefore, companies in the investment sector should be more efficient to compete with foreign investment companies that decide to enter into Kuwaiti market. Therefore, the need for regulations in the Kuwaiti investment sector is more necessary than before. Third, the study of efficiency features is important to help policy makers evaluate how the investment sector will be affected by increasing competition and then formulate policies that affect that sector and the economy as a whole. Furthermore, monetary policy can play an important role in influencing the efficiency in the investment sector. Therefore, the Central Bank of Kuwait should take a leading role in regulating abnormal financial activity in the Kuwaiti market.