Review of Pacific Basin Financial Markets and Policies

Core business and financial market risks are not easily reduced by standard operating procedures in insurance companies. Derivatives theoretically provide a cost effective vehicle to hedge these risks. This paper provides an empirical analysis of the determinants of derivative usage as well as the extent of derivative usage in the Australian insurance industry in both life and general insurance companies for the period 1997–1999.

Empirical results for the Australian life insurance industry in general confirm the findings of UK and US based research. However, the Australian general insurance industry does not appear to follow the conclusions of previous literature. Our results indicate that for life insurers, the determinants of derivative usage were size, leverage and reinsurance. For the general insurance industry the determinants were size and the extent of long tail lines of business written. As regards the determinants of the extent of derivative usage, these were size and asset-liability duration mismatches for life insurers. For the general insurance industry the determinants of the extent of derivative usage were size, the extent of long tail lines of business written, and the reporting year.

Corporate Chief Financial Officers (CFOs) in many countries at different levels of development and in various parts of the world considered financial statement disclosure and corporate corruption to be serious corporate problems long before the Enron debacle. This paper presents the results of a survey of CFOs conducted across 40 countries during the fall of 2000 and the spring of 2001. Most of the respondents, including those in the United States, considered the lack of adequate disclosure of information by companies to be a bigger issue than either corrupt business practices or a lack of effective accounting guidelines. Only in the United Kingdom did more CFOs consider the lack of effective accounting guidelines to be an issue of more concern than the lack of disclosure.

It is widely believed that a great deal of the privatization efforts of governments started in the United Kingdom during the Thatcher Administration. Records show that the first effort to privatize government enterprises started in the Federal Republic of Germany during the time of Prime Minister Adenaur. One of the most remarkable aspects of the privatization efforts of governments is how similar their objectives are to that of Thatcher's. Raising revenue is the primary goal. Apart from this, governments likewise consider the more important objective of improving the financial and operating performance of privatized firm by exposing it to market forces. Thus privatization is also expected to increase the firm's profitability; to increase its operating efficiency; to allow the firm to increase its investment spending; to increase its output; and to maintain employment levels in order to accomplish the just cited objectives, although governments expect employment levels to decline. The financial and operational performance of commercial banks that were privatized in the Philippines was studied. Four banks before privatization and only three banks after privatization, due to the merger of two banks, were considered. The event study flow of analysis was utilized, i.e., the financial and operational performance of the banks three years before privatization was compared with their performance three years after privatization. Major financial measures of profitability, operating efficiency, capital investment spending, output changes, employment changes, leverage charges and dividend payout were considered. Wilcoxon rank sum test and t-test for differences in means were utilized. When the major financial ratios were considered, the Wilcoxon rank sum test results showed that there was significant difference in the median performance before and after privatization in real sales. We applied the t-test for differences in average performance before and after privatization of the bank. Results showed significant differences in mean return on sales, return on assets, real sales and total employment. At this point, Philippine banks that were privatized can already claim substantial improvements in their operational and financial performance.

This paper examines the major determinants of a firm's derivatives use for companies listed in Taiwan Stock Exchange in the period from 1997 to 1999. The study finds that the proportion of derivatives use in Taiwan, ranging from 31% to 37%, is comparable to that of the US (35%), but less than that of New Zealand (53%). Firms' derivatives use in Taiwan asymmetrically focuses on currency/forwards derivatives. Industry breakdown illustrates that the electronic industry stands for the heavy user both in terms of number and amount. We show that the vital determinants of a firm's derivatives use are size, the ratio of long-term debt to total debt, the electronic industry dummy, and the export ratio. The fact that firms' derivatives use positively correlated with size and the long-term-debt-to-total-debt ratio implies the capability-willingness hypothesis: only large firms are affordable to engage in derivatives use due to the concern of economies of scale in establishing and maintaining expertise, and these firms demand more derivatives use when they face with high financial risk in debt structure.

This paper presents a new model of cash breakeven analysis that is designed to assess the risk of insolvency due to illiquidity. Its first step is to parametrize the cash flow statement to this end. Then, it derives several cash breakeven formula. Next, it derives new leverage indices and establishes their linkage to the cash sales coverages. The comprehensive index shows the sensitivity of the firm's surplus cash balance to changes in the sales level after all planned payments, both required and voluntary, are made. The new cash breakeven analysis is contrasted with the traditional profit breakeven analysis by means of a hypothetical example firm. A simulation experiment is provided to elucidate the strengths of the method as a contemporary tool of financial planning.

This paper investigates the impact of index futures tradings on day-of-the-week effects for the equity index in Taiwan's equity market. Using the extensive model of Hiraki, Maberly and Taube (1998), the empirical findings support the hypothesis that the introduction of index futures has a significant impact on the return structure, both in terms of daily seasonalities and the lag effects of past returns on current returns. Of particular interest, Tuesday effects gradually disappeared after the introduction of index futures, and in the post-futures period, Monday returns are found to be anomalous. After controlling non-normality of the error distribution and time-varying conditional variance, the results indicate that the Monday and the Tuesday effects co-exist after the index futures listings. Although the US equity market is shown to have a strong influence on the Taiwan's market, the pattern of weekend effects shift remains unchanged after taking the US spillover into account. The closing of Saturday trading is found to be a partial cause of the observed shift.