Narrow Results

Based on the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) issued six new Financial Accounting Standards (FAS) in 2017, we derive the cost of financing formulas for various Islamic financing contracts. Later, we present a simple theoretical framework for interest-free Islamic banking based on the Basic Limited-Participation Model seminal approach developed by Lucas (Lucas, RE Jr. (1990). Liquidity and interest rates. Journal of Economic Theory, 50(2), 237–264.) and Fuerst’s (Fuerst, TS (1992). Liquidity, loanable funds, and real activity. Journal of Monetary Economics, 29(1), 3–24.), and later followed by Walsh (Walsh, C (1998). Money in the short run: Informational and portfolio rigidities. In Monetary Theory and Policy, pp. 211–223. Cambridge, Mass.: MIT Press.). We compare the competing theoretical models for conventional banks and for interest-free Islamic banks and formulate testable hypothesis. To complement our models, we provide empirical evidence by using a unique sample of 15 banks from Bangladesh that provide both conventional banking and Islamic banking services. Results suggest that Islamic bank profit rates and conventional bank interest rates are correlated in an economic environment where conventional and Islamic banks dwell under same regulatory framework.

This study aims to formulate the least-distance range adjusted measure (LRAM) in data envelopment analysis (DEA) and apply it to evaluate the relative efficiency and provide the benchmarking information for Japanese banks. In DEA, the conventional range adjusted measure (RAM) acts as a well-defined model that satisfies a set of desirable properties. However, because of the practicality of the least-distance measure, we formulate the LRAM and propose the use of an effective mixed integer programming (MIP) approach to compute it in this study. The formulated LRAM (1) satisfies the same desirable properties as the conventional RAM, (2) provides the least-distance benchmarking information for inefficient decision-making units (DMUs), and (3) can be computed easily by using the proposed MIP approach. Here, we apply the LRAM to a Japanese banking data set corresponding to the period 2017–2019. Based on the results, the LRAM generates higher efficiency scores and allows inefficient banks to improve their efficiency with a smaller extent of input–output modification than that required by the RAM, thereby indicating that the LRAM can provide more easy-to-achieve benchmarking information for inefficient banks. Therefore, from the perspective of the managers of DMUs, this study provides a valuable LRAM for efficiency evaluation and benchmarking analysis.

In this work, we analyze the high-frequency time series of the deposits collected from the systemic biggest Greek banks during the recent economic crisis in Greece. Our focus has been to reveal hidden fractal and periodic patterns using a hybrid approach, which combines correlation and frequency analysis of the original and difference series in a synergistic manner. We find that during the first period of the recorded series featured by the dramatic decrease of deposits, the short time behavior exhibits Brownian motion characteristics with fractal dimension close to 1.5, while a cyclical pattern of monthly repetition (21 days) is detected in the difference series to bound fractal behavior. The Brownian property is also observed in the second uprising segment of deposit series, but it lasts more (50 days) and no well-defined cyclical pattern is detected. Our work reveals that the economic crisis in Greece has gradually eroded the cyclical behavior of daily differences in bank deposits, while maintaining a short-term Brownian motion pattern, albeit with an increased duration.

This work aims to inspect the common debate about the implication of derivative instruments in amplifying the last financial crisis. To reach this goal, the study chooses a sample of banks entirely from emerging countries — over the whole period 2003–2011 — in which we examine the impact of derivatives simultaneously on performance, risk and stability during the ordinary period “the pre-crisis period”, 2003–2006, and the unstable period “the crisis and post crisis period”, 2007–2011. The regressions are estimated by generalized methods of moments (GMM) as developed by Blundell and Bond (1998). The major conclusion reveals that only swaps can be considered as implicated in the intensification of the last financial crisis. Therefore, the rest of derivatives instruments cannot be responsible in the amplification of the recent financial crisis. Indeed, the widespread idea accusing all derivatives to be in part responsible of the intensification of the last financial crisis should be revised.

This study examines whether and how US bank holding companies that early adopted Statement of Financial Accounting Standards (SFAS) 133, “Accounting for Derivative Instruments and Hedging Activities,” experience changes in their external financing activities relative to banks that did not early adopt the standard. Consistent with predictions, the study shows that early adopters hold higher and experience greater changes in their leverage compared with nonearly adopters. In addition, early adopters experience greater shifts in weights of liabilities other than insured deposits in banks’ funding mix. This finding is consistent with banking literature which states that banks have shifted towards nondeposit debts to finance their balance sheet growth.

This study is the first to examine the impact of two recent key events on technical, cost and profit efficiencies of Chinese commercial banks — the 2007 Global Financial Crisis (GFC) and the subsequent Chinese Government’s 2009 fiscal stimulus package. Stochastic frontier analysis together with univariate and multivariate tests are used on a sample of 143 banks, including the big five, joint stock, city, rural and foreign, over the 2006–2013 period. Overall, there is substantial scope for improvement — cost efficiency could improve by up to 50%; technical and profit efficiencies by up to 30%. The effect of the crisis and the stimulus package on various overall and segment efficiencies is, at best, inconsistent and inconclusive.

In this paper, we examine the potential gains in physical outputs or earnings on outputs from an optimal reallocation of inputs. When some decision-making units (DMUs) face higher input prices than other DMUs, the Farrell decomposition of cost efficiency can potentially indicate that a firm with lower overall costs of production is less efficient than a firm that uses fewer physical inputs, but has higher costs. We extend our gain functions accounting for cases where DMUs face different input prices. An empirical illustration of our method is provided using data on Japanese banks operating during 2000–2003.

This research focuses on developing and testing the concept of entrepreneurial knowledge management (EKM) to view knowledge management (KM) activities in domestic banks. The ability of banks to learn from the explicit and implicit knowledge it possess and turn it into knowledge assets that can generate income stream is a major factor for sustainable competitive advantage. We used structural equation modelling (SEM) to analyse the data gathered, given that SEM has become one of the popular statistical tools to test the relationships proposed in a parsimonious model. The research has empirically determined that the majority of the respondents are aware that knowledge is important in the business of banking. However, it appears some have relegated KM to Management Information Technology (IT) and neglected to cast a wider net to appreciate the importance of EKM for the purpose of creating unique entrepreneurial knowledge asset to enable sustainable differentiation and competitive advantage for generating future income streams.

Availability of bank financing has been a matter of serious concern for start-up enterprises. Various reasons for non-availability of bank financing by these entities have been studied in the past; however, the role of bankers’ leadership styles has not been explored well. Although leadership in the banking sector is well researched, studies on influence of leadership styles in decisions made by bankers on providing loans to start-up entrepreneurs are non-existent. Therefore, the objective of this study is to find out if three leadership styles — i.e. transformational, transactional and laissez-faire — influence bankers while they make a decision on providing a loan to a start-up entrepreneur. The findings of this paper indicate that, out of three leadership styles, transformational leadership style has a significant influence on decisions made by bankers on loans to start-up entrepreneurs while transactional and laissez-faire leadership styles did not have a significant influence on bankers.

Financial liberalization in China has begun to allow more flexibility in bank interest rate setting but may threaten bank profit margins. This paper documents the initial response to the June 2012 initiative that, for the first time, allowed Chinese banks to meaningfully depart from the benchmark rates laid down by the People's Bank. We use an event study to assess the initial effects on bank share prices and compare the response of the larger state-owned banks to the smaller commercial banks. We identify significant reactions in both the Shanghai and Hong Kong markets.

We assess benefits and costs of the Troubled Asset Relief Program (TARP) based on theory, data, and empirical research to date. TARP was intended to attenuate systemic risk and improve the real economy, and we focus on these as the most important potential effects of the program. Evidence suggests mostly short-term social benefits in reducing systemic risk and improving the real economy. However, long-term evidence is limited — suggesting relatively long-lasting real economic improvements that might be offset by long-term increases in systemic risk. We give TARP a grade of “incomplete,” pending further research, and suggest some directions for this research.

Between October 28, 2008 and June 30, 2009 over 600 banks and bank holding companies accepted money from the United States government in exchange for preferred shares and warrants. Based on a matched sample of banks participating and not participating in this Capital Purchase Program (CPP), of each dollar of new government equity, on average participants levered roughly 13 cents to support increased lending while they used roughly 60 cents to increase their regulatory capital ratios. Over the previous business cycle, 2000–2008, allocation of new capital to support lending was higher than in 2008–2009 by nearly 30 cents per dollar of new capital. Moreover, in the previous downturn, 2000–2001, allocation to new lending was higher by an even greater amount. Banks’ exposure to past-due loans, which was higher in 2008 than in 2000 or in any other sample year, negatively predicts allocation of new capital to new lending. Characteristics of CPP participants suggest they were of two types: those with high commitments and opportunities for new lending, and those with exposures to certain troubled loan classes. Banks with high leverage and high expected costs of regulatory downgrades also were more likely participants. All of these results are consistent with banks having an optimal, target capital structure based on some form of tradeoff theory.

I test and find supporting evidence for the precautionary motive hypothesis of liquidity hoarding for U.S. commercial banks during the global financial crisis. I find that banks held more liquid assets in anticipation of future losses from securities write-downs. Exposure to securities losses in their investment portfolios and expected loan losses (measured by loan loss reserves) represent key measures of banks’ on-balance sheet risks, in addition to off-balance sheet liquidity risk stemming from unused loan commitments. Furthermore, unrealized securities losses and loan loss reserves seem to better capture the risks stemming from banks’ asset management and provide supporting evidence for the precautionary nature of liquidity hoarding. Moreover, I find that more than one-fourth of the reduction in bank lending during the crisis is due to the precautionary motive.

The relationship between capital structure and return on equity (ROE) is examined. It is shown that for banks in the US, for the relatively less regulated 1983–1989 period as well as the more highly regulated 1996–2002 period, there is a positive relationship between financial leverage and the ROE. The analysis is extended to determine the relationship between return on assets (ROA) and equity capital. The evidence supports the hypothesis that there is a positive relationship between equity capital and ROA.

In this study, we find savings deposits have contributed significantly to the effectiveness of regulation induced consolidation within the banking sector in so far as improvements in banking system structure, output, profitability and competitiveness are concerned. Specifically, we find savings deposits are key parameters in the transition from a banking structure within which profitability is primarily determined by liquidity during the pre-consolidation period (2007–2008) to a banking structure within which profitability is primarily a function of loan portfolio growth (output) during the post-consolidation period (2010–2012). In spite of the increase in importance of savings deposits for banking system competition, output, or profitability during the post-consolidation period, savings deposit rates have decreased by about 50% between the pre- and post-consolidation periods. Interest rates on savings deposits also do not lie on the efficiency frontier for loan production. Combined, our findings indicate the benefits of consolidation that accrue from savings deposits have yet to translate into social welfare benefits for banks' retail customers.

Using a large sample of U.S. bank holding companies (BHC) from 2000:Q1–2017:Q4, we investigate the impacts of dividend policy to bank earnings management, and document that banks that pay dividends tend to be less opaque than banks that do not pay dividends. The dividend policy not only impacts the conditional average earnings management of banks, but also exerts influence on their dispersion. The impact of dividend policy appears to be more profound for highly opaque banks. We identify different conditions that motivate different discretionary behaviors of banks, which allows us to better observe different managerial motives between dividend-paying and dividend-non-paying banks. Under high information asymmetry context, there is valuably additional information conveyed by paying dividends, and it follows that the role of dividends as a means of conveying information is more pronounced. For banks subject to high agency problems, paying dividends make them to be less opaque through reducing the discretionary behaviors.

Efficiency is a topic of great interest because its applications are diverse and rich. It is applied greatly in all scientific disciplines, especially accounting for a very large proportion in economics, finance and accounting. The main objective in this paper is to analyze the effectiveness of banks in Vietnam. In order to investigate this issue, there are several implements to examine bank effectiveness where the data envelopment analysis (DEA) method is widely used. This paper presents details of the DEA method. Using the data collected from banks in Vietnam for the period 2014–2017, the approach is executed to investigate issues of technical efficiency, resource analysis and business efficiency of banks in Vietnam.

We analyze the impact of COVID-19 on the profitability of top-rated banks in the world using a comprehensive list of bank-specific ratios under post-lasso regressions based on GLS, FGLS and WLS techniques. While size and loans do not materially impound on profitability, a squeeze in the positive impact of asset utilization for all profitability metrics is conspicuously noted. COVID-19 induced declines in the negative impact of total impairment charges and provisions are noted for ROA and NIM while COVID-19-induced hike in the cost-to-income ratio is found for ROE. Findings also demonstrate that policy responses initiated during the crisis did not boost the profits of banks. From a policy perspective, sharing economy could manifest as a contemplated business model for banks, should the world relapse into another form of pandemic-related crisis.