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Journal Cover Journal of Banking & Finance
  [SJR: 1.264]   [H-I: 102]   [148 followers]  Follow
    
   Hybrid Journal Hybrid journal (It can contain Open Access articles)
   ISSN (Print) 0378-4266
   Published by Elsevier Homepage  [3118 journals]
  • Trading efficiency of fund families: Impact on fund performance and
           investment behavior
    • Authors: Gjergji Cici; Laura K. Dahm; Alexander Kempf
      Pages: 1 - 14
      Abstract: Publication date: March 2018
      Source:Journal of Banking & Finance, Volume 88
      Author(s): Gjergji Cici, Laura K. Dahm, Alexander Kempf
      This study examines how the efficiency of trading desks operated by mutual fund families affects portfolio performance and investment behavior of affiliated funds. We estimate the trading efficiency of a fund family's trading desk as the difference between the gross return of the family's index fund, which incorporates trading costs, and the return of the underlying index, which does not incorporate trading costs, around index adjustment dates. By operating more efficient trading desks that help reduce trading costs, fund families improve the performance of their funds significantly and also enable their funds to trade more and hold less liquid portfolios.

      PubDate: 2017-12-12T18:33:50Z
      DOI: 10.1016/j.jbankfin.2017.11.004
      Issue No: Vol. 88 (2017)
       
  • Financial literacy and participation in the derivatives markets
    • Authors: Yu-Jen Hsiao; Wei-Che Tsai
      Pages: 15 - 29
      Abstract: Publication date: March 2018
      Source:Journal of Banking & Finance, Volume 88
      Author(s): Yu-Jen Hsiao, Wei-Che Tsai
      We set out in this study to determine whether individuals with higher levels of financial literacy are more likely to be active participants in the derivatives markets. Our empirical results, based upon an official National Survey undertaken by the Financial Supervisory Commission of Taiwan, reveal that even after controlling for stock market participation rates, financial literacy represents a significant benefit to individuals since it helps them to lower the entry barriers to purchasing complex derivatives products. We also find that household wealth, gender, residential location and diverse sources of information have significant effects on participation rates in the derivatives markets. Furthermore, when taking into consideration issues of accessibility or measurement error, the positive effects of financial literacy on derivatives market participation are found to remain largely unchanged.

      PubDate: 2017-12-12T18:33:50Z
      DOI: 10.1016/j.jbankfin.2017.11.006
      Issue No: Vol. 88 (2017)
       
  • Short selling around the expiration of IPO share lockups
    • Authors: Michael Gibbs; (Grace) Qing Hao
      Pages: 30 - 43
      Abstract: Publication date: March 2018
      Source:Journal of Banking & Finance, Volume 88
      Author(s): Michael Gibbs, (Grace) Qing Hao
      We are the first to examine daily short selling activity around the expiration of IPO share lockups. We find that short selling increases before the lockup expiration date and declines afterward, and the level of short selling is higher in stocks of venture capital (VC)- and private equity (PE)-backed IPOs than other IPOs. Unlike VC-backed IPO stocks, PE-backed IPO stocks do not experience a negative return or a trading volume jump on the lockup expiration date. PE investors do not reduce percentage ownership in the IPO firm as much as VC investors do after lockup expirations. Short selling in PE- and VC-backed IPO stocks prior to the lockup expiration date can predict PE and VC ownership reduction but not the stock returns after the lockup expires. In contrast, short selling in stocks of the IPO firms without a PE or VC investor can predict stock returns after the lockup expires.

      PubDate: 2017-12-12T18:33:50Z
      DOI: 10.1016/j.jbankfin.2017.09.018
      Issue No: Vol. 88 (2017)
       
  • Are gold and silver cointegrated' New evidence from quantile
           cointegrating regressions
    • Authors: Karsten Schweikert
      Pages: 44 - 51
      Abstract: Publication date: March 2018
      Source:Journal of Banking & Finance, Volume 88
      Author(s): Karsten Schweikert
      This paper revisits the study on the long-run relationship between gold and silver by Escribano and Granger (1998). We apply a quantile cointegration model to gold and silver prices and to prices of the corresponding futures contracts. Whereas cointegration models, assuming a constant cointegrating vector, fail to detect a cointegration relationship between gold and silver, we are able to show that a nonlinear long-run relationship exits. The cointegrating vector is modelled as state-dependent and time-varying in our framework and the quantile cointegration estimates reveal substantial asymmetry in the relationship. The results suggest that the pronounced role of precious metals as investment opportunities particularly in bubble-like episodes and times of financial turmoil leads to comovement of gold and silver in these periods.

      PubDate: 2017-12-12T18:33:50Z
      DOI: 10.1016/j.jbankfin.2017.11.010
      Issue No: Vol. 88 (2017)
       
  • Loss aversion around the world: Empirical evidence from pension funds
    • Authors: Yuxin Xie; Soosung Hwang; Athanasios A. Pantelous
      Pages: 52 - 62
      Abstract: Publication date: March 2018
      Source:Journal of Banking & Finance, Volume 88
      Author(s): Yuxin Xie, Soosung Hwang, Athanasios A. Pantelous
      We propose a novel method to estimate loss aversion together with risk aversion and subjective probability weighting in a reference-dependent utility. Using multiple asset allocations in the 31 OECD pension funds, we find that our estimates of loss aversion and subjective probability weights are similar to those reported by Wang et al. (2017) and Rieger et al. (2011), respectively, despite the differences in the estimation methods. However, loss aversion increases with wealth and only Hofstede's Individualism is positively related to loss aversion. Countries with high individualism or masculinity prefer high risk and high return assets to bonds, whereas countries that dislike uncertainty prefer bonds to risky assets.

      PubDate: 2017-12-12T18:33:50Z
      DOI: 10.1016/j.jbankfin.2017.11.007
      Issue No: Vol. 88 (2017)
       
  • The state dependent impact of bank exposure on sovereign risk
    • Authors: Maximilian Podstawski; Anton Velinov
      Pages: 63 - 75
      Abstract: Publication date: March 2018
      Source:Journal of Banking & Finance, Volume 88
      Author(s): Maximilian Podstawski, Anton Velinov
      The theoretical literature remains inconclusive on whether changes in bank exposure to the domestic sovereign have an adverse effect on the sovereign risk position through a diabolic loop in the sovereign-bank nexus, or reduce perceived default risk by acting as a disciplinary device for the sovereign. In this paper we empirically analyze the impact of exogenous changes in bank exposure on the risk position of the sovereign within a Markov switching structural vector autoregressive in heteroscedasticity (MSH-SVAR) framework for a set of EMU countries. We add to the methodological literature by allowing for regime dependent shock transmissions according to the volatility state of the financial system. Finding support for both, a stabilizing and a destabilizing effect, we document a clear clustering among the country sample: rising bank exposure increased default risk for the EMU periphery, but decreased credit risk for the core EMU countries during times of financial stress.

      PubDate: 2017-12-12T18:33:50Z
      DOI: 10.1016/j.jbankfin.2017.11.002
      Issue No: Vol. 88 (2017)
       
  • What do the prices of UK inflation-linked securities say on inflation
           expectations, risk premia and liquidity risks'
    • Authors: Iryna Kaminska; Zhuoshi Liu; Jon Relleen; Elisabetta Vangelista
      Pages: 76 - 96
      Abstract: Publication date: March 2018
      Source:Journal of Banking & Finance, Volume 88
      Author(s): Iryna Kaminska, Zhuoshi Liu, Jon Relleen, Elisabetta Vangelista
      The difference between yields on nominal and inflation-linked government bonds or inflation swap rates are important indicators of the outlook for inflation and are monitored regularly by central banks, including the United Kingdom's Monetary Policy Committee (MPC). However, in the United Kingdom, inflation-linked instruments reference RPI inflation, whereas the MPC's target is CPI inflation of 2%. In this paper we extract market expectations for UK CPI inflation with the help of UK RPI-linked gilt prices, which is a novelty in the literature. To better extract useful information about expectations for CPI inflation, we develop a no-arbitrage term structure model and decompose the forward inflation curve into: measures of CPI inflation expectations; the expected wedge between RPI and CPI inflation; estimates of inflation risk premia and estimates of liquidity risk premia. We show that long-horizon expectations of CPI inflation fell in the 1990 s, after the introduction of inflation targeting and the creation of the MPC, and have since remained fairly stable at around 2%.

      PubDate: 2017-12-12T18:33:50Z
      DOI: 10.1016/j.jbankfin.2017.09.015
      Issue No: Vol. 88 (2017)
       
  • How much is too much' Large termination fees and target distress
    • Authors: Jordan Neyland; Chander Shekhar
      Pages: 97 - 112
      Abstract: Publication date: March 2018
      Source:Journal of Banking & Finance, Volume 88
      Author(s): Jordan Neyland, Chander Shekhar
      We provide evidence that large termination fees mitigate contracting problems in acquisitions of targets with high information asymmetry. Large fees are more common if targets face financial constraints or distress. Deals with large termination fees are less likely to be consummated, consistent with large fees allowing acquirers to recover bidding costs when facing a high risk of bid failure. We correct for the endogenous selection of large termination fees and present evidence that managers negotiate large fees in exchange for higher premiums. This is in contrast with prior evidence that suggests large fees result from managerial self-interest and harm target shareholders.

      PubDate: 2017-12-12T18:33:50Z
      DOI: 10.1016/j.jbankfin.2017.11.001
      Issue No: Vol. 88 (2017)
       
  • Industry networks and IPO waves
    • Authors: Mufaddal Baxamusa; Abu Jalal
      Pages: 129 - 146
      Abstract: Publication date: March 2018
      Source:Journal of Banking & Finance, Volume 88
      Author(s): Mufaddal Baxamusa, Abu Jalal
      We offer a new perspective on why initial public offerings (IPOs) occur in waves and propose that the customer-supplier relationships among industries help propagate IPO waves. Our empirical tests provide evidence that demand shocks increase the number of IPOs in an industry. The shocks then spread upstream through customer relationships leading to an increase in the number of IPOs in more central and connected industries. These findings contribute to the IPO literature by demonstrating the channel through which IPO waves propagate.

      PubDate: 2017-12-12T18:33:50Z
      DOI: 10.1016/j.jbankfin.2017.11.015
      Issue No: Vol. 88 (2017)
       
  • Sentiment hedging: How hedge funds adjust their exposure to market
           sentiment
    • Authors: Yao Zheng; Eric Osmer; Ruiyi Zhang
      Pages: 147 - 160
      Abstract: Publication date: March 2018
      Source:Journal of Banking & Finance, Volume 88
      Author(s): Yao Zheng, Eric Osmer, Ruiyi Zhang
      We investigate a new facet of hedging ability among hedge fund managers. Using a sentiment exposure model, we find evidence that fund managers adjust the market exposure of their portfolios to changes in market sentiment. Out-of-sample evidence indicates that hedge funds having the highest negative sentiment exposure outperform funds having the highest positive sentiment exposure by 1.7%–2.4% per year. The results remain persistent for both the sub-period analysis and the analysis excluding crisis periods. We also find that a hedge fund's willingness to take on sentiment exposure decreases with fund age and fund size and increases with incentive fees. Our findings remain robust even after controlling for hedge fund data biases, as well as using alternative sentiment measures.

      PubDate: 2017-12-12T18:33:50Z
      DOI: 10.1016/j.jbankfin.2017.11.016
      Issue No: Vol. 88 (2017)
       
  • Point process models for extreme returns: Harnessing implied volatility
    • Authors: R. Herrera; A.E. Clements
      Pages: 161 - 175
      Abstract: Publication date: March 2018
      Source:Journal of Banking & Finance, Volume 88
      Author(s): R. Herrera, A.E. Clements
      Forecasting the risk of extreme losses is an important issue in the management of financial risk. There has been a great deal of research examining how option implied volatilities (IV) can be used to forecast asset return volatility. However, the role of IV in the context of predicting extreme risk has received relatively little attention. The potential benefit of IV in forecasting extreme risk is considered within a range of models beginning with the traditional GARCH based approach, along with a number of novel point process models. Univariate models where IV is included as an exogenous variable are considered along with a novel bivariate approach where extreme movements in IV are treated as another point process. It is found that in the context of forecasting Value-at-Risk, the bivariate models produce the most accurate forecasts across a wide range of scenarios.

      PubDate: 2017-12-12T18:33:50Z
      DOI: 10.1016/j.jbankfin.2017.12.001
      Issue No: Vol. 88 (2017)
       
  • Monthly cyclicality in retail Investors’ liquidity and lottery-type
           stocks at the turn of the month
    • Authors: Yun Meng; Christos Pantzalis
      Pages: 176 - 191
      Abstract: Publication date: March 2018
      Source:Journal of Banking & Finance, Volume 88
      Author(s): Yun Meng, Christos Pantzalis
      The well-documented underperformance of lottery stocks masks a within-month cyclical pattern. Demand for lottery stocks increases at the turn of the month, especially in areas whose demographic profile resembles that of typical lottery-ticket buyers (i.e., gamblers), thus driving their prices higher. This effect is rooted in local retail investors’ preference for lottery stocks and propelled by the within-month cyclicality of local investors’ personal liquidity positions. A long-short investment strategy based on this cyclical pattern of lottery stocks’ performance yields gross abnormal returns of about 12.6% per year.

      PubDate: 2017-12-27T10:43:31Z
      DOI: 10.1016/j.jbankfin.2017.11.012
      Issue No: Vol. 88 (2017)
       
  • How data breaches affect consumer credit
    • Authors: Vyacheslav Mikhed; Michael Vogan
      Pages: 192 - 207
      Abstract: Publication date: March 2018
      Source:Journal of Banking & Finance, Volume 88
      Author(s): Vyacheslav Mikhed, Michael Vogan
      We use the 2012 South Carolina Department of Revenue data breach as a natural experiment to study how data breaches and news coverage about them affect consumers’ interactions with the credit market and their use of credit. We find that some consumers directly exposed to the breach protected themselves against potential losses from future fraudulent use of stolen information by monitoring their files and freezing access to their credit reports. However, these consumers continued their regular use of existing credit cards and did not switch lenders. The response of consumers exposed to the news about the breach only was negligible.

      PubDate: 2017-12-27T10:43:31Z
      DOI: 10.1016/j.jbankfin.2017.12.002
      Issue No: Vol. 88 (2017)
       
  • Financial synergies and systemic risk in the organization of bank
           affiliates
    • Authors: Elisa Luciano; Clas Wihlborg
      Pages: 208 - 224
      Abstract: Publication date: March 2018
      Source:Journal of Banking & Finance, Volume 88
      Author(s): Elisa Luciano, Clas Wihlborg
      We analyze theoretically banks’ choice of organizational structures in branches, subsidiaries or stand-alone banks, in the presence of public bailouts and default costs. These structures are characterized by different arrangements for internal rescue of affiliates against default. The cost of debt and leverage are endogenous. For moderate bailout probabilities, subsidiary structures, wherein the two entities provide mutual internal rescue under limited liability, have the highest group value, but also the highest risk taking as measured by leverage and expected loss. We explore the effect of constraints on leverage and policy implications. The conflict of interests between regulators, who minimize systemic risk, and banks, who maximize their own value, is mitigated when capital requirements are effective.

      PubDate: 2017-12-27T10:43:31Z
      DOI: 10.1016/j.jbankfin.2017.11.011
      Issue No: Vol. 88 (2017)
       
  • Bank monitoring and CEO risk-taking incentives
    • Authors: Anthony Saunders; Keke Song
      Pages: 225 - 240
      Abstract: Publication date: March 2018
      Source:Journal of Banking & Finance, Volume 88
      Author(s): Anthony Saunders, Keke Song
      This paper investigates whether monitoring by bank lenders affects CEO incentives of borrowing firms. We find that an increase in bank monitoring incentives significantly reduce the sensitivity of CEO wealth to stock return volatility (Vega). The results are more profound when bank lenders are more powerful and reputable and have a prior lending relationship with the borrowing firms. Additionally, Vega decreases after financial covenant violations and increases when bank lenders have offsetting equity stakes in borrowing firms. The reduction in Vega due to bank monitoring has some real effects on borrowing firms’ corporate policies. These results together suggest banks have a unique role in monitoring and shaping CEO incentives to mitigate the risk-shifting incentives of firm managers.

      PubDate: 2017-12-27T10:43:31Z
      DOI: 10.1016/j.jbankfin.2017.12.003
      Issue No: Vol. 88 (2017)
       
  • Alternative corporate governance: Domestic media coverage of mergers and
           acquisitions in China
    • Authors: Paul Borochin; Wei Hua Cu
      Pages: 1 - 25
      Abstract: Publication date: February 2018
      Source:Journal of Banking & Finance, Volume 87
      Author(s): Paul Borochin, Wei Hua Cu
      A text analysis of domestic Chinese newspaper articles covering 797 proposed domestic mergers shows that the media in developing countries is susceptible to pressure: coverage is more favorable for deals consistent with government objectives and involving powerful local firms. However, we also find that coverage can affect the outcome of proposed M&A deals in non-stateowned firms. We identify this effect using an exogenous shock to market-driven governance from the Split-Share Structure Reform of 2007. Negotiation coverage predicts long-term performance, consistent with information dissemination. Despite biased coverage, domestic media in developing countries can function as an alternative channel for corporate governance.

      PubDate: 2017-11-09T22:33:34Z
      DOI: 10.1016/j.jbankfin.2017.08.020
      Issue No: Vol. 87 (2017)
       
  • Hidden gems and borrowers with dirty little secrets: Investment in soft
           information, borrower self-selection and competition
    • Authors: Reint Gropp; Andre Guettler
      Pages: 26 - 39
      Abstract: Publication date: February 2018
      Source:Journal of Banking & Finance, Volume 87
      Author(s): Reint Gropp, Andre Guettler
      This paper empirically examines the role of soft information in the competitive interaction between relationship and transaction banks. Soft information can be interpreted as a valuable signal about the quality of a firm that is observable to a relationship bank, but not to a transaction bank. We show that borrowers self-select to relationship banks depending on whether their observed soft information is positive or negative. Competition affects the investment in learning the soft information from firms by relationship banks and transaction banks asymmetrically. Relationship banks invest more; transaction banks invest less in soft information, exacerbating the selection effect.

      PubDate: 2017-11-09T22:33:34Z
      DOI: 10.1016/j.jbankfin.2017.09.014
      Issue No: Vol. 87 (2017)
       
  • Jumps, cojumps, and efficiency in the spot foreign exchange market
    • Authors: Louis R. Piccotti
      Pages: 49 - 67
      Abstract: Publication date: February 2018
      Source:Journal of Banking & Finance, Volume 87
      Author(s): Louis R. Piccotti
      I identify intraday jumps and cojumps in exchange rates controlling for volatility patterns and relate these events to pre-scheduled macroeconomic news and market conditions. Event study results show that preceding jump and cojump events, exchange rate quote volume, illiquidity, signed order flow, and informed trades are at heightened levels revealing that jump events are consistent with rational dealer quoting behavior. Following jump and cojump events, quote volume and return variance remain at heightened levels while illiquidity, informed trade, and signed order flow remain at depressed levels providing evidence that order flow following jump events is largely uninformed liquidity provision.

      PubDate: 2017-11-09T22:33:34Z
      DOI: 10.1016/j.jbankfin.2017.09.007
      Issue No: Vol. 87 (2017)
       
  • Local corporate social responsibility, media coverage, and shareholder
           value
    • Authors: Seong K. Byun; Jong-Min Oh
      Pages: 68 - 86
      Abstract: Publication date: February 2018
      Source:Journal of Banking & Finance, Volume 87
      Author(s): Seong K. Byun, Jong-Min Oh
      Using news articles covering firm's corporate social responsibility (CSR) activities, we find that publicized CSR activities are positively associated with shareholder value and improved future operating performance. Furthermore, we find that media coverage on CSR engagements with local impact on companies’ communities and employees, rather than those with broader social impact on the general public, is the main driver in explaining higher shareholder value and operating performance. We also implement a two-stage least-squares regression (2SLS) and propensity score matching to establish a causal link between publicized local CSR activities and shareholder value. Our evidence is consistent with the notion that shareholders put positive value on locally-oriented CSR when it is also complemented with high level of stakeholder awareness.

      PubDate: 2017-11-09T22:33:34Z
      DOI: 10.1016/j.jbankfin.2017.09.010
      Issue No: Vol. 87 (2017)
       
  • Distance to compliance portfolios: An integrated shortfall measure for
           basel III
    • Authors: Christian Schmaltz; Thomas Heidorn; Ingo Torchiani
      Pages: 87 - 101
      Abstract: Publication date: February 2018
      Source:Journal of Banking & Finance, Volume 87
      Author(s): Christian Schmaltz, Thomas Heidorn, Ingo Torchiani
      We propose measuring a bank’s distance to compliance with Basel III using a portfolio that makes the bank compliant. This “Distance to Compliance” portfolio describes an implementable strategy and incorporates the interactions of all Basel III ratios. We derive the portfolio in a microeconomic banking model in which the board decides on the regulatory target levels and bears the responsibility in case the bank fails to meet the regulatory requirements in a stress situation. We apply our framework to two hypothetical banks and find that they achieve compliance by growth strategies without cutting lending. We corroborate that shareholders choose different compliance strategies than managers, emphasizing the importance of setting managers’ incentives carefully. We compare our results to findings from impact studies that are not model-based and do not consider the interactions of the Basel III ratios. We observe that the synergies of LCR and NSFR are the most pronounced ones but of secondary order in absolute magnitude. This means that measuring “Distance to Compliance” on a ratio-by-ratio basis omitting synergies, as often done by regulators, does not introduce a major bias.

      PubDate: 2017-11-09T22:33:34Z
      DOI: 10.1016/j.jbankfin.2017.09.002
      Issue No: Vol. 87 (2017)
       
  • Social capital and the cost of equity
    • Authors: Atul Gupta; Kartik Raman; Chenguang Shang
      Pages: 102 - 117
      Abstract: Publication date: February 2018
      Source:Journal of Banking & Finance, Volume 87
      Author(s): Atul Gupta, Kartik Raman, Chenguang Shang
      We find that a firm's cost of equity is inversely related to the level of social capital in the state where the firm is headquartered. Further, the cost of equity declines when firms move their headquarters from a low-social-capital state to a state with higher social capital. The negative relation between social capital and the cost of equity is statistically significant only for firms facing relatively low levels of product–market competition and is not significant for firms with good firm-specific reputations. We interpret these findings as indicating that social capital serves as a societal monitoring mechanism, and can be value-enhancing for firms that are perceived as having greater agency problems and face weak product market monitoring.

      PubDate: 2017-11-09T22:33:34Z
      DOI: 10.1016/j.jbankfin.2017.10.002
      Issue No: Vol. 87 (2017)
       
  • Bid-to-cover and yield changes around public debt auctions in the euro
           area
    • Authors: Roel Beetsma; Massimo Giuliodori; Jesper Hanson; Frank de Jong
      Pages: 118 - 134
      Abstract: Publication date: February 2018
      Source:Journal of Banking & Finance, Volume 87
      Author(s): Roel Beetsma, Massimo Giuliodori, Jesper Hanson, Frank de Jong
      Earlier research has shown that euro-area primary public debt markets affect secondary markets. We find that more successful auctions of euro area public debt, as captured by higher bid-to-cover ratios, lead to lower secondary-market yields following the auctions. This effect is stronger when market volatility is higher. We rationalize both findings using a simple theoretical model of primary dealer behavior, in which the primary dealers receive a signal about the value of the asset auctioned.

      PubDate: 2017-11-09T22:33:34Z
      DOI: 10.1016/j.jbankfin.2017.10.006
      Issue No: Vol. 87 (2017)
       
  • Q-theory, mispricing, and profitability premium: Evidence from China
    • Authors: Fuwei Jiang; Xinlin Qi; Guohao Tang
      Pages: 135 - 149
      Abstract: Publication date: February 2018
      Source:Journal of Banking & Finance, Volume 87
      Author(s): Fuwei Jiang, Xinlin Qi, Guohao Tang
      Using various empirical measures, we find that, in China, firms with high profitability generate substantially higher future stock returns than those with low profitability. This positive effect of profitability on expected returns is robust to controlling for other firm characteristics and risks. We show that the profitability premium is stronger among firms with low investment friction, which is consistent with the implications of investment-based q-theory asset pricing models. However, the premium is not stronger among firms with high limits to arbitrage, contradicting behavioral mispricing explanations.

      PubDate: 2017-11-09T22:33:34Z
      DOI: 10.1016/j.jbankfin.2017.10.001
      Issue No: Vol. 87 (2017)
       
  • Export market exit and financial health in crises periods
    • Authors: Holger Görg; Marina-Eliza Spaliara
      Pages: 150 - 163
      Abstract: Publication date: February 2018
      Source:Journal of Banking & Finance, Volume 87
      Author(s): Holger Görg, Marina-Eliza Spaliara
      This paper uses rich firm-level data for the UK to investigate the link between firms’ financial health and export exit, paying attention to the ERM currency crisis and the global financial crisis. Our results show that deterioration in the financial position of firms has increased the hazard of export exit during the 2007–09 crisis but has no significant effect on the early 1990s crisis. We also explore the extent to which firms in financially vulnerable industries face greater sensitivity of export exit to financial conditions. We conclude that firms in sectors with great reliance on external finance experience higher hazards of exiting the export market during the 2007–09 crisis.

      PubDate: 2017-11-09T22:33:34Z
      DOI: 10.1016/j.jbankfin.2017.08.004
      Issue No: Vol. 87 (2017)
       
  • Bank funding costs in a rising interest rate environment
    • Authors: Jeffrey R. Gerlach; Nada Mora; Pinar Uysal
      Pages: 164 - 186
      Abstract: Publication date: February 2018
      Source:Journal of Banking & Finance, Volume 87
      Author(s): Jeffrey R. Gerlach, Nada Mora, Pinar Uysal
      One key risk to the banking system is how funding costs will change as monetary policy is normalized and interest rates rise after almost a decade of near-zero rates. Our contribution is to develop a model that jointly estimates banks’ balance sheets and retail interest rates to arrive at a consistent estimate of the change in bank funding costs as market rates change. Our estimates imply a 100 basis-point shock to the Federal Funds rate would increase overall deposit funding costs by about $40 billion, which is roughly equal to 25% of aggregate annual net income for commercial banks and savings institutions. We also find that deposit rate responses are largely symmetric, in contrast to some previous research showing deposit rates are less responsive to upward movements in reference rates. We introduce unique and confidential data on bank deposit betas to anchor our results.

      PubDate: 2017-11-09T22:33:34Z
      DOI: 10.1016/j.jbankfin.2017.09.011
      Issue No: Vol. 87 (2017)
       
  • Can lenders discern managerial ability from luck' Evidence from bank
           loan contracts
    • Authors: Dien Giau Bui; Yan-Shing Chen; Iftekhar Hasan; Chih-Yung Lin
      Pages: 187 - 201
      Abstract: Publication date: February 2018
      Source:Journal of Banking & Finance, Volume 87
      Author(s): Dien Giau Bui, Yan-Shing Chen, Iftekhar Hasan, Chih-Yung Lin
      We investigate the effect of managerial ability versus luck on bank loan contracting. Borrowers showing a persistently superior managerial ability over previous years (more likely due to ability) enjoy a lower loan spread, while borrowers showing a temporary superior managerial ability (more likely due to luck) do not enjoy any spread reduction. This finding suggests that banks can discern ability from luck when pricing a loan. Firms with high-ability managers are more likely to continue their prior lower loan spread. The spread-reduction effect of managerial ability is stronger for firms with weak governance structures or poor stakeholder relationships, corroborating the notion that better managerial ability alleviates borrowers’ agency and information risks. We also find that well governed banks are better able to price governance into their borrowers’ loans, which helps explain why good governance enhances bank value.

      PubDate: 2017-11-09T22:33:34Z
      DOI: 10.1016/j.jbankfin.2017.09.023
      Issue No: Vol. 87 (2017)
       
  • Corporate litigation and debt
    • Authors: Matteo P. Arena
      Pages: 202 - 215
      Abstract: Publication date: February 2018
      Source:Journal of Banking & Finance, Volume 87
      Author(s): Matteo P. Arena
      This study examines the effect of litigation risk and litigation costs on firms’ credit ratings and debt financing. The results show that litigation affects a firm's creditworthiness and debt costs in two stages. Before a lawsuit filing, firms at higher risk of litigation have lower credit ratings, are more likely to be rated speculative grade, pay higher yields on loans and bonds, and are less likely to rely on debt financing. At the time of the lawsuit resolution, settlement costs have an additional effect on firm credit quality. Companies facing larger settlement disbursements in relation to their available cash experience a decline in credit ratings and an increase in yield spread. The results are robust to endogeneity concerns and different proxies of litigation risk.

      PubDate: 2017-11-09T22:33:34Z
      DOI: 10.1016/j.jbankfin.2017.10.005
      Issue No: Vol. 87 (2017)
       
  • Are Chinese credit ratings relevant' A study of the Chinese bond
           market and credit rating industry
    • Authors: Miles Livingston; Winnie P.H. Poon; Lei Zhou
      Pages: 216 - 232
      Abstract: Publication date: February 2018
      Source:Journal of Banking & Finance, Volume 87
      Author(s): Miles Livingston, Winnie P.H. Poon, Lei Zhou
      We investigate the nascent but fast-growing Chinese bond market and credit rating industry. We find Chinese bond ratings are informative and significantly correlated with bond offering yields. In addition, the Chinese bond investors distinguish ratings from different credit rating agencies (CRAs), demanding lower yields on bonds rated by global-partnered CRAs. However, the empirical results suggest that the rating scales used by Chinese CRAs are not comparable to those of international CRAs. Furthermore, Chinese CRAs have very broad rating scales and pool bonds with significantly different default risks into a single rating category, resulting in over 90% of bonds in only three rating categories.

      PubDate: 2017-11-09T22:33:34Z
      DOI: 10.1016/j.jbankfin.2017.09.020
      Issue No: Vol. 87 (2017)
       
  • Forex trading and the WMR Fix
    • Authors: Martin D.D. Evans
      Pages: 233 - 247
      Abstract: Publication date: February 2018
      Source:Journal of Banking & Finance, Volume 87
      Author(s): Martin D.D. Evans
      I examine the behavior of forex prices around the setting of the 4:00 pm WMR Fix. Numerous banks have been fined by regulators for their trading activities around the Fix, but the overall impact of their actions is not known. I first examine trading patterns around the Fix in a microstructure model of competitive trading. I then compare the model with the empirical behavior of forex prices across 21 currencies over a decade. Contrary to the predictions of the model, forex price changes display extraordinary volatility and negative serial correlation around the Fix.

      PubDate: 2017-11-09T22:33:34Z
      DOI: 10.1016/j.jbankfin.2017.09.017
      Issue No: Vol. 87 (2017)
       
  • An examination of the relation between strategic interaction among
           industry firms and firm performance
    • Authors: Tumennasan Bayar; Marcia Millon Cornett; Otgontsetseg Erhemjamts; Ty Leverty; Hassan Tehranian
      Pages: 248 - 263
      Abstract: Publication date: February 2018
      Source:Journal of Banking & Finance, Volume 87
      Author(s): Tumennasan Bayar, Marcia Millon Cornett, Otgontsetseg Erhemjamts, Ty Leverty, Hassan Tehranian
      This paper examines the relation between the degree and type of strategic interaction among industry firms and firm performance. As a measure of firm performance, we use data envelopment analysis (DEA) to estimate the efficiency of a firm relative to the ‘best practice’ firms in its industry. We find that firms in industries with higher levels of strategic interaction are less efficient and the negative relation is more pronounced in industries where firms compete in strategic substitutes. This finding is consistent with the idea that there is significantly more cooperation (tacit collusion) under strategic complements than strategic substitutes. We also find that frontier efficiency methodology outperforms other measures of firm performance in explaining the relation between strategic interaction and firm performance.

      PubDate: 2017-11-09T22:33:34Z
      DOI: 10.1016/j.jbankfin.2017.10.009
      Issue No: Vol. 87 (2017)
       
  • The dawn of an ‘age of deposits’ in the United States
    • Authors: Matthew Jaremski; Peter L. Rousseau
      Pages: 264 - 281
      Abstract: Publication date: February 2018
      Source:Journal of Banking & Finance, Volume 87
      Author(s): Matthew Jaremski, Peter L. Rousseau
      Individual deposits in the United States grew from 5% to 23% of GDP between 1863 and 1913. A comprehensive database shows bank entry underlying this trend while historical events, including the National Banking Acts, resumption in 1879, and the election of 1896, influenced deposits at the bank-level. The nation's embrace of deposits was thus driven by stability of the monetary system and confidence in the safety and utility of established and well-capitalized banks. Bank-level and county-level regressions confirm these patterns for national banks over the entire postbellum period and for a sample of Midwest state and national banks from 1888.

      PubDate: 2017-11-09T22:33:34Z
      DOI: 10.1016/j.jbankfin.2017.10.010
      Issue No: Vol. 87 (2017)
       
  • Regional banking instability and FOMC voting
    • Authors: Stefan Eichler; Tom Lähner; Felix Noth
      Pages: 282 - 292
      Abstract: Publication date: February 2018
      Source:Journal of Banking & Finance, Volume 87
      Author(s): Stefan Eichler, Tom Lähner, Felix Noth
      This study analyzes if regionally affiliated Federal Open Market Committee (FOMC) members take their districts’ regional banking sector instability into account when they vote. Considering the period 1979–2010, we find that a deterioration in a district's bank health increases the probability that this district's representative in the FOMC votes to ease interest rates. According to member-specific characteristics, the effect of regional banking sector instability on FOMC voting behavior is most pronounced for Bank presidents (as opposed to Governors) and FOMC members who have career backgrounds in the financial industry or who represent a district with a large banking sector.

      PubDate: 2017-11-09T22:33:34Z
      DOI: 10.1016/j.jbankfin.2017.10.011
      Issue No: Vol. 87 (2017)
       
  • Timing of banks’ loan loss provisioning during the crisis
    • Authors: Leo de Haan; Maarten R.C. van Oordt
      Pages: 293 - 303
      Abstract: Publication date: February 2018
      Source:Journal of Banking & Finance, Volume 87
      Author(s): Leo de Haan, Maarten R.C. van Oordt
      We estimate a panel error correction model for loan loss provisions, using unique supervisory data on flow of funds into and out of the allowance for loan losses of 25 Dutch banks in the post-2008 crisis period. We find that these banks aim for an allowance of 49% of impaired loans. In the short run, however, the adjustment of the allowance is only 29% of the change in impaired loans. The deviation from the target is made up by (a) larger additions to allowances in subsequent quarters and (b) smaller reversals of allowances when loan losses do not materialize. After one quarter, the adjustment toward the target level is 32%, and after four quarters it is 79%. For individual banks, there are substantial differences in timing of provisioning for bad loan losses.

      PubDate: 2017-11-09T22:33:34Z
      DOI: 10.1016/j.jbankfin.2017.10.003
      Issue No: Vol. 87 (2017)
       
  • Cash flows and credit cycles
    • Authors: Nicolás Figueroa; Oksana Leukhina
      Pages: 318 - 332
      Abstract: Publication date: February 2018
      Source:Journal of Banking & Finance, Volume 87
      Author(s): Nicolás Figueroa, Oksana Leukhina
      Aggregate productivity falls in recessions and rises in expansions. Several empirical studies suggest that the systematic behavior of lending standards, with laxer (tighter) standards applied during expansions (recessions), is responsible for reverting trends in aggregate productivity. We build a dynamic model that rationalizes these findings. Adverse selection in credit markets emerges as a potential source of macroeconomic instability. The key idea modeled is that in order to effectively signal their type to financiers, productive entrepreneurs must suffer a cost. The effective cost of signaling rises with higher cash flow brought about by stronger economic fundamentals, because higher cash flow makes it easier for the unproductive type to mimic the productive type. Competition among the financiers then results in suboptimally lax lending standards. Low productivity entrepreneurs obtain financing, the producer composition effect inducing a recession. This, in turn, creates conditions – weak economic fundamentals and low cash flow – conducive to the emergence of tighter lending terms, the strong composition effect leading to an economic recovery.

      PubDate: 2017-11-09T22:33:34Z
      DOI: 10.1016/j.jbankfin.2017.10.013
      Issue No: Vol. 87 (2017)
       
  • Sex and credit: Do gender interactions matter for credit market
           outcomes'
    • Authors: Thorsten Beck; Patrick Behr; Andreas Madestam
      Pages: 380 - 396
      Abstract: Publication date: February 2018
      Source:Journal of Banking & Finance, Volume 87
      Author(s): Thorsten Beck, Patrick Behr, Andreas Madestam
      This paper studies the effects of gender interactions on the supply of and demand for credit using data from a large Albanian lender. We document that first-time borrowers assigned to officers of the opposite sex are less likely to return for a second loan. The effect is larger when officers have little prior exposure to borrowers of the other gender and when they have more discretion to act on their gender beliefs, as proxied by financial market competition and branch size. We also find that first-time borrowers matched with opposite-sex officers pay higher interest rates and receive smaller and shorter-maturity loans, but do not experience higher arrears. Our results are consistent with the existence of a gender bias and learning effects that lead to the disappearance of the bias.

      PubDate: 2017-11-09T22:33:34Z
      DOI: 10.1016/j.jbankfin.2017.10.018
      Issue No: Vol. 87 (2017)
       
  • All’s well that ends well' On the importance of how returns are
           achieved
    • Authors: Daniel Grosshans; Stefan Zeisberger
      Pages: 397 - 410
      Abstract: Publication date: February 2018
      Source:Journal of Banking & Finance, Volume 87
      Author(s): Daniel Grosshans, Stefan Zeisberger
      We demonstrate that investor satisfaction and investment behavior are influenced substantially by the price path by which the final investor return is achieved. In a series of experiments, we analyze various different price paths. Investors are most satisfied if their assets first fall in value and then recover, and they are least satisfied with the opposite pattern, independent of whether the final return is positive or negative. Price paths systematically influence risk preferences, return beliefs, and ultimately trading decisions. Our results enable a much more holistic perspective on a wide range of topics in finance, such as the disposition effect, risk-taking behavior after previous gains and losses, and behavioral asset pricing.

      PubDate: 2017-11-17T13:07:32Z
      DOI: 10.1016/j.jbankfin.2017.09.021
      Issue No: Vol. 87 (2017)
       
  • The impact of more frequent portfolio disclosure on mutual fund
           performance
    • Authors: Sitikantha Parida; Terence Teo
      Pages: 427 - 445
      Abstract: Publication date: February 2018
      Source:Journal of Banking & Finance, Volume 87
      Author(s): Sitikantha Parida, Terence Teo
      This paper analyzes the impact of more frequent portfolio disclosures on performance of mutual funds. Since 2004, SEC requires all U.S. mutual funds to disclose their portfolio holdings on a quarterly basis from semi-annual previously. This change in regulation provides a natural setting to study the impact of frequency of disclosure on performance of mutual funds. Prior to the policy change, we find that successful semi-annual funds outperform successful quarterly funds by 17–20 basis points a month. After 2004, their performance goes down and they no longer outperform successful quarterly funds. This reduction in performance is higher for semi-annual funds holding illiquid assets. These results support our hypothesis that the performance of funds with more frequent disclosure, particularly of those holding illiquid assets, suffer more from front running activities. We also find complementary evidence that the profitability of a hypothetical front running strategy based on public disclosures goes up with the frequency of portfolio disclosures.

      PubDate: 2017-11-17T13:07:32Z
      DOI: 10.1016/j.jbankfin.2015.01.018
      Issue No: Vol. 87 (2017)
       
  • Fraud recovery and the quality of country governance
    • Authors: Filippo Curti; Atanas Mihov
      Pages: 446 - 461
      Abstract: Publication date: February 2018
      Source:Journal of Banking & Finance, Volume 87
      Author(s): Filippo Curti, Atanas Mihov
      Using supervisory data from U.S. financial institutions on fraud-related losses in foreign markets, we find that losses in countries with poor governance have lower recovery rates. Our results are robust to accounting for potential endogeneity and reverse causality concerns, among numerous robustness checks. The association is driven by intuitive governance dimensions such as control of corruption, rule of law, regulatory quality and government effectiveness. In addition, country governance plays a particularly important role in fraud recovery for firms with poor risk management quality. Overall, this paper presents unique and novel evidence tying country governance quality to firm-level risk realizations.

      PubDate: 2017-12-12T18:33:50Z
      DOI: 10.1016/j.jbankfin.2017.11.009
      Issue No: Vol. 87 (2017)
       
  • The impact of conventional and unconventional monetary policy on
           expectations and sentiment
    • Authors: Emilios Galariotis; Panagiota Makrichoriti; Spyros Spyrou
      Pages: 1 - 20
      Abstract: Publication date: January 2018
      Source:Journal of Banking & Finance, Volume 86
      Author(s): Emilios Galariotis, Panagiota Makrichoriti, Spyros Spyrou
      This paper offers evidence on the effect of ECB's conventional and unconventional monetary policy on economic expectations in Euro-area countries during the US and EU crisis. We employ a range of research methodologies in a sample of nine Eurozone countries and combine expectations/sentiment indicators with a set of macroeconomic and financial variables. We find that ECB's conventional monetary policy (and Fed's monetary policy stance) has a positive and significant effect on economic expectations for Core Eurozone countries and a weak effect on Peripheral Eurozone countries. ECB's unconventional policy measures, however, have a negative short term effect on Core countries’ economic expectations. This result is robust to different methodologies (PVAR, QVAR, FAVAR) and different datasets. Overall, our findings highlight the importance of monetary policy in the determination of economic expectations.

      PubDate: 2017-10-04T08:19:09Z
      DOI: 10.1016/j.jbankfin.2017.08.014
      Issue No: Vol. 86 (2017)
       
  • Evaluating VPIN as a trigger for single-stock circuit breakers
    • Authors: David Abad; Magdalena Massot; Roberto Pascual
      Pages: 21 - 36
      Abstract: Publication date: January 2018
      Source:Journal of Banking & Finance, Volume 86
      Author(s): David Abad, Magdalena Massot, Roberto Pascual
      We study if VPIN (Easley et al., 2012a) is an efficient advance indicator of toxicity-induced liquidity crises and related sharp price movements. We find that high VPIN readings rarely signal abnormal illiquidity, and very occasionally anticipate large intraday price changes leading to actual trading halts. We find significant differences in illiquidity and price impact between VPIN-identified toxic and non-toxic halts, but they tend to vanish when we control for ex ante realized volatility. We conclude that the capacity of VPIN to anticipate truly toxic events is limited.

      PubDate: 2017-10-04T08:19:09Z
      DOI: 10.1016/j.jbankfin.2017.08.009
      Issue No: Vol. 86 (2017)
       
  • China's “Mercantilist” Government Subsidies, the Cost of Debt
           and Firm Performance
    • Authors: Chu Yeong Lim; Jiwei Wang; Cheng (Colin) Zeng
      Pages: 37 - 52
      Abstract: Publication date: January 2018
      Source:Journal of Banking & Finance, Volume 86
      Author(s): Chu Yeong Lim, Jiwei Wang, Cheng (Colin) Zeng
      China has been adopting a “mercantilist” policy by lavishing massive government subsidies on Chinese firms. Using hand-collected subsidy data on Chinese listed companies, we find that firms receiving more subsidies tend to have a lower cost of debt. However, such firms fail to have superior financial performance. Instead, firms with more subsidies tend to be overstaffed, which demonstrates higher social performance. These results are mainly driven by non-tax-based subsidies rather than tax-based subsidies. Overall, our results suggest that the Chinese government uses non-tax-based subsidies to achieve its social policy objectives at the expense of firms’ profitability.

      PubDate: 2017-10-04T08:19:09Z
      DOI: 10.1016/j.jbankfin.2017.09.004
      Issue No: Vol. 86 (2017)
       
  • National elections and tail risk: International evidence
    • Authors: Qingyuan
      Abstract: Publication date: March 2018
      Source:Journal of Banking & Finance, Volume 88
      Author(s): Qingyuan Li, Si Li, Li Xu
      We investigate stock tail risk around national elections worldwide over the period of 1982–2012. We find that firm stock is less likely to crash during the election years, and is more likely to crash during the post-election period. This inter-temporal pattern is consistent with the suppression of negative information when there is heightened political uncertainty around elections and with the subsequent release of adverse news when the uncertainty is reduced. Further analysis shows that the impact of political uncertainty on tail risk is stronger in countries with poorer investor protection, fewer electoral checks and balances, more uncertain election outcomes and pro-business incumbent governments, in industries which are more politically sensitive, and in firms with larger information asymmetry.

      PubDate: 2017-12-12T18:33:50Z
       
  • Legal framework quality and success of (different types of) venture
           capital investments
    • Authors: Tereza
      Abstract: Publication date: February 2018
      Source:Journal of Banking & Finance, Volume 87
      Author(s): Tereza Tykvová
      Drawing on an analysis of 8,270 companies from 41 countries, I explore the relationship between success of venture capital investments and legal frameworks in the investment countries. Legal framework quality is related to success, but the effect varies with the deal type. First, the significant and positive relationship between legal framework quality and success is more pronounced for domestic deals than for international deals. Further investigations suggest that international venture capitalists often exit their portfolio companies abroad, particularly when these companies are located in countries with inefficient legal frameworks. In addition, the results lend support to the view that international venture capitalists have a greater experience and reputation. Second, legal framework quality seems to be more important for success in syndicated than in standalone deals. This finding supports the view that a sound legal framework may improve the benefit–cost balance of syndication, while an inefficient legal framework may tend to increase costs in syndicated deals.

      PubDate: 2017-11-09T22:33:34Z
       
  • Detecting Money Market Bubbles
    • Authors: Jan Baldeaux; Katja Ignatieva; Eckhard Platen
      Abstract: Publication date: Available online 1 November 2017
      Source:Journal of Banking & Finance
      Author(s): Jan Baldeaux, Katja Ignatieva, Eckhard Platen
      The existence of a self-financing trading strategy that replicates the money market account at a fixed future date at a lower cost than the current value of this account constitutes a money market bubble (MMB). Understanding whether a market exhibits an MMB is crucial, in particular, for derivative pricing. An MMB precludes the existence of a risk-neutral probability measure. The benchmark approach allows to study MMBs and is formulated under the real world probability measure. It does not require the existence of a risk neutral probability measure. Using a range of well-known stochastic volatility models, we study the existence of an MMB in the US economy, and find that the US market exhibits an MMB for all models considered that allow it. This suggests that for derivative pricing and hedging care should be taken when making assumptions pertaining to the existence of a risk-neutral probability measure. Less expensive portfolios are likely to exist for a wide range of long-term derivatives, as typical for pensions.

      PubDate: 2017-11-02T17:50:16Z
      DOI: 10.1016/j.jbankfin.2017.10.017
       
  • Gender, risk tolerance, and false consensus in asset allocation
           recommendations
    • Authors: Nicolas P.B. Bollen; Steven Posavac
      Abstract: Publication date: Available online 28 October 2017
      Source:Journal of Banking & Finance
      Author(s): Nicolas P.B. Bollen, Steven Posavac
      We study the impact of gender on asset allocation recommendations. Graduate business students and professional wealth managers are randomly assigned a male or female client. Participants recommend an allocation and choose an allocation for themselves. Male students choose a riskier allocation than female students, consistent with existing evidence of a gender difference in risk tolerance, and recommend a riskier allocation. In contrast, male and female wealth managers choose and recommend the same allocation, indicating that male and female finance professionals feature similar risk preferences. In both samples, a subject's allocation choice is the strongest predictor of the recommendation provided.

      PubDate: 2017-11-02T17:50:16Z
      DOI: 10.1016/j.jbankfin.2017.10.016
       
  • The peer performance ratios of hedge funds
    • Authors: David Ardia; Kris Boudt
      Abstract: Publication date: Available online 26 October 2017
      Source:Journal of Banking & Finance
      Author(s): David Ardia, Kris Boudt
      We define the outperformance (resp. underperformance) of an investment fund as the percentage of funds in the peer universe for which the true performance of the focal fund is higher (resp. lower). We show that the p–values of the pairwise tests of equal performance can be used to obtain estimates of the out– and underperformance ratio that are robust to false discoveries – estimated alpha differentials for which the significance test has a low p–value while the true alpha is identical. When applied to hedge funds, we find that ranking funds on the outperformance ratio leads to a top quintile portfolio with a higher absolute and risk–adjusted performance than when the estimated alpha is used.

      PubDate: 2017-11-02T17:50:16Z
      DOI: 10.1016/j.jbankfin.2017.10.014
       
 
 
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