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The Cambodian banking sector has rapidly expanded in recent decades, although there are concerns about the performance of Cambodian banks and the country’s banking sector. A paucity of empirical evidence to clarify the real issues in the banking sector also makes it difficult to formulate effective policy measures to address any potential problems. This study provides empirical evidence by estimating the cost function and efficiencies of 34 commercial banks over the period from 2012 to 2015. We find that the average cost efficiency scores range from 0.60 when measuring bank outputs as loan and deposit amounts, and 0.77 when measuring bank outputs as interest and non-interest income, suggesting that if they are operated more efficiently, they could cut costs by 40% in fund mobilization and 23% in profit making while keeping the same output level. We also find that the Cambodian banks have experienced an improvement in efficiency scores over the period for both aspects of banking activities. Furthermore, we find that expanding a branch network into rural areas is inefficient for bank management, and holding excessive liquidity is associated with higher efficiency, but diversification in bank business operations is negatively associated with cost efficiency of Cambodian commercial banks.

Synopsis

The research problem

The Basel framework has been a significant development in the world of banking and finance, and it is imperative to have a firm understanding of these regulations and their implications for empirical accounting research, particularly as they relate to bank capital and capital requirements.

Motivation

The motivation of this paper is to advance the understanding of the role of accounting in post-GFC bank regulations and to empower researchers by improving their understanding of the regulatory process and their understanding of regulatory resources.

Target population

Global banks, bank regulators, and bank standard setters.

Adopted methodology

This paper aims to provide an overview of the interactions between bank accounting and prudential regulation, focusing specifically on post-GFC regulations such as Basel III.

Findings

I document differences between bank regulation and financial reporting standards, which are in a constant state of flux. Differences manifest themselves in definitional distinctions, such as the fact that bank capital is not the same as equity, the scope of application and associated data availability, the standard setting process, and stakeholder interests. The disparities are dynamic and specific to each country or jurisdiction, which adds complexity to the research process. Despite the efforts of the Basel Committee to establish unified standards, there has been an increasing divergence in the implementation of global banking rules. These developments present new research opportunities.

Synopsis

The research problem

We measured the sensitivity of bank market values to capital and regulatory adjustments (RAs) applied to bank capital using a novel approach of measuring value relevance.

Motivation or theoretical reasoning

Regulators require banks to apply adjustments to book equity to calculate regulatory capital, where book equity is the starting point of the calculation of capital ratios. The regulators emphasize the benefits of these adjustments. Making banks hold more capital, the adjustments should contribute to the reduction of procyclical amplification of financial shocks throughout the banking system, financial markets, and the broader economy. However, RAs are underresearched: empirical research focuses on a few of them, such as the prudential filter on AFS securities, and their effects in specific circumstances. This prompts questions about the overall relevance of RAs. This paper then examines the sensitivity, expressed in elasticities, of market values to capital and RAs. Are adjustments, on their own or in aggregate, value relevant? Are market values more or less sensitive to different measures of bank capital, such as book equity, Tier 1, or total capital? Does the sensitivity evolve over time? And if so, why?

The test hypotheses

• H₁:The elasticity of bank book equity with respect to market value is 1.
• H₂:The elasticities of RAs with respect to market values are 0.

Target population

US bank holding companies over the years 2001Q1–2022Q3.

Adopted methodology

We used panel data analyses to estimate log–log models. These models transform all variables such as market values and accounting values into logs.

Analyses

We used log–log models as an alternative to traditional additive-linear models because the coefficients of the latter are sensitive to sample choice, choice of time period, and outlier treatment. The response coefficients in log–log models are scale-free elasticities that measure, with some precision, the proportional change in the dependent variable associated with a proportional change in the independent variables.

Findings

Our results show that the sensitivity of bank book equity converges to 1 when market uncertainty is low and when banks’ Tier 1 ratios reach 12% of risk-weighted assets (RWAs). Market values are more sensitive to changes in capital of highly geared banks when market uncertainty is high, with shareholders responding positively in particular to increases in Tier 1 and total capital. This is consistent with risk-shifting by shareholders. Market values are generally less sensitive to prudential filters, such as those on unrealized gains and losses on AFS securities.

We provide a detailed response to Ines Simac's (2024) discussion of our study on the sensitivity of bank market values to regulatory adjustments (RAs) of capital. Initially, we investigated the relevance of these adjustments, motivated by ongoing changes in the definition of bank capital aimed at ensuring financial stability. Our research utilized log-log models to address the challenges of alternative methodologies that may not effectively capture the value relevance of bank capital and RAs. Our results underscore the stability and predictability of coefficients that measure value relevance.

We further explore the valuation perspective, distinguishing between a “valuation” model for a theory of the relation between market and accounting values and a statistical model that estimates the sensitivity of market values to changes in accounting variables. We advocate for the use of log-log models due to their robustness in estimating response coefficients as elasticities. This approach minimizes issues related to scale and distribution assumptions inherent in additive-linear models.

We also address minor points raised in the discussion, including the coefficient values of goodwill and Tier 2 capital. Our findings contribute to a nuanced understanding of how regulatory adjustments influence bank valuations, offering implications for both academic research and regulatory policy.

High impact research in our fields of banking and finance, and more broadly that of economics, can take three main forms: (1) solving the major unsolved problems in the field, (2) posing major questions/ problems to be solved, and (3) providing a new framework/ approach to synthesize current and extant knowledge in the field. We analyze some recent research in different areas of banking and finance (institutions, risk, governance, bank capital/ regulation, innovation) with a view to distil the creative processes at work. We find that the common themes that emerge are consistent with the theory of bisociation proposed by Koestler in his seminal 1964 book, “The Act of Creation”. We also provide a simple combinatorial exercise in the process of creativity that can be used by the reader by adapting to the topics and areas of her research.

This paper investigates the importance and the determinants of trust in a lending situation using a controlled experiment. We find that communication can facilitate collaboration between lenders and borrowers through three channels of trust: (1) an information channel, (2) a preference channel, and (3) a reciprocity channel. Our results highlight the role of trust in mitigating the moral hazard problem in lending.

In this paper, we analyzed the role of banks’ traditional lending on systemic stability. Firstly, we quantified the effect of correlation among banks’ results on systemic risk through Monte Carlo simulation. Secondly, we verified how traditional lending affects banks’ results correlation. Finally, combining the two effects, we assessed the importance of bank traditional lending on financial stability. Our results suggest that banks devoting a higher share of their assets to traditional lending show a lower correlation of their comprehensive income, thus having a mitigation effect on systemic stability.

In the framework of literature devoted to corporate governance and board composition, we take a peculiar viewpoint and focus on the presence of university professors in the governing body of Italian banks. In particular, we test whether the gender quota regulation increased the presence of female professors as directors. We find evidence of a relevant increase in the probability of designating women from the academia in the years immediately following the entry into force of the gender quota regulation in Italy, whereas no significant increase is in place for male professors over the same period. Our results suggest the need to enhance the career opportunities for women up the C-levels in order to fuel diversity in the boardrooms, not only in independent but also in executive roles. In light of the empirical evidence provided, a re-thinking of gender quota regulations would also be advisable in order to better pursue the desired outcomes.