Search results

The purpose of this paper is to study the market reactions of the banking industry to the Russian–Ukraine war.

This paper uses an event study methodology, regression analyses and interaction effects to study the effect of the war on banks stock prices and analyze factors that explain the cumulative abnormal return.

First, this study finds a significant decline of almost 1.5% in return on the war date. Similar patterns were observed for all continents, but Europe had the most severe drop of about 4%. Second, after excluding the contemporaneous influence of the whole market using the market model, global bank equities returns fell by about 1% on the war date, indicating that bank stocks were more severely impacted by the war than the average stock market. Net-of-market return approach further reveals that bank stock prices decreased 1.4% more on the event day compared to the prewar market average. Third, the impacts of the war and sanctions were persistent when the war continued. Banks stocks were most hit in Europe, Asia and North America.

This paper pioneers the study of the effect of the Russia–Ukraine war on the banking industry. This paper also analyzes the reaction pattern of bank stocks before, during and after the war to explain the behavior and expectations of investors toward the war.

The purpose of this paper is to investigate the relationship between corporate debt-like compensation and the value of excess cash holdings.

The sample comprises 876 US firms covered by ExecuComp over the period 2006-2013. The authors apply the valuation regression of Fama and French (1998) to examine the marginal value of excess cash as a function of CEO inside debt holdings.

This paper proposes one hypothesis. The results constitute evidence that the value of excess cash to shareholders declines as CEO inside debt increases. More interestingly, excess cash holdings contribute less to firm value when shareholders expect their value to be destroyed due to managers’ conservative behavior.

The sample comprises only US firms, owing to a lack of firms data from other countries. It would be interesting to conduct future research on an international sample.

This paper contributes to a deeper understanding of investor valuation of excess cash in the presence of CEO inside debt. The findings complement previous studies on US firms by confirming the existence of a relationship between the agency costs of debt and firm policy decisions.

This work is, to the best of the authors’ knowledge, the first to examine the relationship between debt-like compensation and excess cash valuation, and it supports the view that the conflict between shareholders and debtholders largely affects firm cash policy, and hence, cash valuation.

This paper aims to investigate a fundamental research question of whether the Islamic banking business model makes corporate earnings more uncertain. This question arises because prior research shows that Islamic banks do well in loan performance but incur more operational costs than conventional banks, indicating the systemic limitation of Islamic banks in business risk management.

The study used a sample of banks to conduct the panel regression analysis with 15 years of data for 532 banks (129 Islamic and 403 conventional) from 23 Muslim countries across the world. The authors estimate earnings uncertainty in two ways: the spread and standard deviation of the country-adjusted return over the sample period and applied the difference-in-difference approach interacting cost to income ratio with the Islamic bank dummy, checking if Islamic bank’s high operational costs contribute to more earning uncertainty.

Islamic banks’ returns on assets are significantly more uncertain than conventional banks due to higher operational costs. Consistent with earlier evidence, the study also finds that Islamic banks generally have fewer nonperforming loans than conventional banks. The authors conclude that Islamic banks trade-off between reducing credit risk and escalating business risk.

This study documents that the Islamic banking model helps build a safer asset portfolio but gives rise to the uncertainty of corporate earnings. Therefore, the choice between Islamic and conventional banking models involves a trade-off between credit and business risks. It is a new finding that we add to the literature body on Islamic finance.

The aim of this chapter is to investigate the relationship between ethics, risks of compliance failure and strategic value of global responsibility for BRICS companies. The first part of the chapter adopts a theoretical approach: it introduces and analyzes the key role of compliance risk management for sustainable and successful development of companies. The second part of the chapter uses an empirical approach, based on the case study method. The chapter focuses on the BRICS. The chapter demonstrates that mere formal compliance with laws, recommendations, and internal codes is not sufficient for companies that want to be responsible and attract stakeholders’ consent and resources. A shared background of ethical principles is required for a proper understanding of the rules, in order to prevent the risk of compliance failure and limit the global risk exposure of a company. Due to the business perspective adopted in the research, this chapter leaves out the sociological aspects regarding how to create, spread, and strengthen the culture of compliance within a company. The chapter encourages companies to connect ethical principles and compliance with the rules. Indeed, a lack of ethics in business operations, obscured by formal compliance, often results in indirect negative impacts on stakeholder relationships, so it is only a futile attempt to act responsibly. The originality of the chapter consists in suggesting the adoption of a responsibility-oriented approach for compliance risk management.

The purpose of this paper is to add to the understanding of the monitoring role of multiple large shareholders (MLS) by examining their impact on the informativeness of firms' earnings.

The paper uses regression models that relate earnings to stock returns for a sample of 402 French publicly traded firms covered during 2003‐2007.

The paper shows that earnings informativeness is significantly positively related to the owner's ultimate cash flow rights. Consistent with the alignment effect, stock ownership aligns management and shareholders interests which reduces managers' incentives to manipulate accounting information. It also finds that earnings informativeness is significantly negatively related to the excess control of the ultimate controlling shareholder. This result supports the entrenchment effect and suggests that controlling shareholders have greater incentives to obscure accounting figures when expropriation is likely. Finally, control contestability of the largest controlling shareholder mitigates information asymmetry problems thereby enhancing earnings informativeness.

The findings stress the importance of MLS in enhancing internal monitoring and mitigating agency costs. Because France is characterized by a weak legal system, highly concentrated ownership structures and excess control, the results provide valuable insights to mitigate extreme agency problems.

The paper adds to the literature on corporate governance and the quality of accounting information by investigating strategic interactions between various blockholders and their impact on earnings informativeness. The study complements prior studies on the monitoring role of MLS by demonstrating that both their presence and control size translate into significantly greater earnings informativeness.

The analysis considers the use of Benford’s Law as a forensic tool to audit the quality of accounting information reported by banks in emerging market countries. History suggests that lack of financial standards and reporting transparency can ultimately lead to bank failures in these nations. We use the Benford Distribution to analyze the first digits of bank financial statement entries and show the value of accounting standards in producing information of high quality. Benford’s Law maintains that the first digits of an unconstrained, large array of numbers might follow a lognormal pattern. It can be applied, for example, to financial statements issued by banks to infer their data integrity. To illustrate the importance of accounting standards and reporting transparency, the analysis utilizes Russian bank statement data from 2001 to 2011. The main finding is that accounting standards matter. After the Russian Central Bank required all banks to adopt International Financial Reporting Standards in 2004, the financial statement data largely conformed to Benford’s Law. While the Benford distribution can be used to infer the overall quality of bank financial statement data in emerging market countries, it is less effective in spotting troubled banks that commit reporting fraud. One possible reason is that the Benford distribution is scale invariant, and violation of Benford’s Law is a sufficient but not necessary condition for accounting irregularities.

This chapter aims to determine whether diversification benefits accrue from adding emerging market hedge funds (EMHFs) to an emerging market bond/equity portfolio, and subsequently whether the type of exposure hedge funds provide is justified by their fees. We use multivariate cointegration analysis to show that the advantages of adding hedge funds to balanced portfolios are limited for the three regions of Asia, Eastern Europe, and Latin America, as well as for the entire global emerging market universe. In summary, we find that emerging market hedge funds are generally redundant for diversifying long-only emerging market investment portfolios with long-term investment horizons. This result also holds when we extend our sample by the global financial crisis in 2008 and 2009 and allow for structural breaks according to the Gregory-Hansen (1996) test. Hence, even during the global financial crisis in 2008 and 2009, when risk diversification was most needed, long-term comovements between hedge funds and traditional assets is, with the exception of the Eastern European region, not disrupted. Because EMHF returns are heavily influenced by the emerging market equity and bond markets, we conclude that the “alpha fees” charged by EMHFs may not always be appropriate for the three main regions under consideration. This also holds, however, to a lesser extent, for a global diversification among hedge funds and traditional assets in emerging markets.