International Journal of Finance & Banking Studies

Advocates of blockchain claim widespread impact will be forthcoming shortly. However, the path of innovation in blockchain is uncharted. Investors will assess where blockchain innovation will profit first and most. The timing and impact of each blockchain innovation is a key consideration for business managers. Link, Ruhm, and Siegel (2014) suggest private equity investments forecast which innovations are likely to succeed. Previous research on private equity gives insight on why that ownership structure is especially successful. Private equity investments are collected for two periods and categorized according to basic blockchain components, basic cryptocurrency payment components, and decentralized applications, particularly applications in financial services. The results suggest investors have acted prudently, investing strongly in building blocks, payment systems and fundamental applications, showing a primary emphasis on refining blockchain and realizing standard blockchain protocols before investing in highly complex applications. Further, financial services applications dominate, suggesting investors see financial services as far and away the most likely industry for imminent deconstruction.

Previous study finds that the firms with inferior growth options tend to issue callable bonds. Typically, these firms are characterized by stock underperformance. Previous study also finds that the floating rate as a superior alternative to the call provision, which is restrictive, when the interest rates are likely to fall. We study the long-term stock performance of floating rate notes (FRNs) issuing firms, issued when the interest rates are high. Stock overperformance would suggest floating rate as a preferred choice by the firms with high growth options rather the call option. We find that the FRNs are generally investment grade with extremely rare presence of a call option. We perform the analysis using Buy and hold abnormal return (BHAR) as the proxy for the long-term stock overperformance/underperformance. A sample of floating rate notes issued (1654) from 1992 to 2007, a period of high interest rates, reveals significant overperformance by the floating rate notes issuing firms in the high-rate paradigm. High growth firms, in the high-rate environment, significantly benefit from the floating rate provision which is less restrictive and less costly than the call option, which typically provides call protection period and pays a call premium. Floating rate provision better mitigates the interest rate risk for the firms in the high-rate environment. We find that the smaller, high growth, higher leverage, less profitable firms with greater agency issues benefit more from issuing FRNs in the high-rate environment. Our study has relevance to the stock portfolio construction and performance. We also perform a comparative analysis using the sample of floating rate notes issued (270) during 2008 to 2018, a period of low interest rates, and find stock underperformance. The implications are that the call option likely is a better choice for the firm since the firm preserves the right to forego exercising the option.

This paper aims to analyse the effects of financial statement indicators and off-balance sheet items affecting risk measures among Indian banks employing both panel data regression and a non-parametric decision tree approach. We explore the effects of bank size, leverage, exposure to contingent liabilities including off-balance sheet derivatives usage and macroeconomic factors on risk measures for banks. In this paper, it is also aimed to examine the effects of the major financial liberalization policy period in the domestic market in India that started in the mid-1990s and ended around 2004 as well as impacts of the 2008 global financial crisis on the risk measures of banks operating in India.  As risk measures, we present a comparative analysis of liquidity, solvency, and interest rate risk measures of Indian banks across public (government) and private ownership categories. Main findings from our study demonstrate (i) significant impact of capital adequacy and the bank size on all the risk measures, (ii) contingent liabilities (including derivatives usage) at banks is observed to significantly impact the asset management measure of liquidity risk and the solvency risk of banks, (iii) GDP growth is observed to impact the asset management and liability management measure of liquidity risk, (iv) the global financial crisis is found to have a significant impact on the liquidity risk measures and interest rate risk, but a weak effect on solvency risk of Indian banks, (v) bank ownership category (government owned versus private sector banks) is observed to have a significant impact on all the risk measures, and finally (vi) financial liberalization reforms had a highly significant effect on the liquidity risk at banks.

The crux of bank accounting is how to measure and disclose ex ante credit risk, as loan yields and cost of funds are determined by managerial effectiveness and the financial market. This paper examines how the practice of setting up provisions for loan losses by bank managers had changed to preserve regulatory capitals around the 2008 financial crisis. This paper examines the empirical relationship between ex ante credit loss, which is proxied by loan losses provisions, and realized credit loss, which is measured by net charge-off. The empirical relations are examined before, during, and after the 2008 financial crisis to find the patterns of prediction errors of the incurred loss model. This paper obtains evidence that the empirical relation between non-performing assets and provisions for loan losses weakened at the time of a financial crisis. The relations of net charge-offs and allowance for loan losses on provisions for loan losses amplified during a financial crisis by accounting design. After the financial crisis is over, the empirical relation between non-performing assets and provisions for loan losses does not return back to the pre-crisis relation, but to a different, new post-crisis relation. This paper obtains evidence that financially stable banks in terms of the tier 1 capital ratio, return on assets, market-to-book ratio, or dividend payout ratio tend to adjust provisions for loan losses in a larger scale in response to a financial crisis than less stable banks.

To improve audit reports' transparency and information content, China implemented new auditing standards in 2017.  The standards, which include disclosing key audit matters, were applied to A+H share companies in 2017 and A-share companies in 2018.  This paper uses A+H-share companies as the experimental group and A-share companies as the control group and applies the difference-in-differences method to test the market response to the new auditing standards.  We find a statistically significant positive cumulative abnormal return (CAR) during the report release event window for the A+H share companies.  The results indicate a greater investor reaction to the release of audit reports under the new standards implying that the audit reforms enhanced the information of the reports.  Furthermore, the positive CAR indicates that the reports reassured investors that the audit did not reveal significant problems or that existing weaknesses were addressed.  We also found a statistically insignificant difference in the volatility of stock prices during the event window for the experimental and control group. 

Previous study finds that the firms with inferior growth options tend to issue callable bonds. Typically, these firms are characterized by stock underperformance. Previous study also finds that the floating rate as a superior alternative to the call provision, which is restrictive, when the interest rates are likely to fall. We study the long-term stock performance of floating rate notes (FRNs) issuing firms, issued when the interest rates are high. Stock overperformance would suggest floating rate as a preferred choice by the firms with high growth options rather the call option. We find that the FRNs are generally investment grade with extremely rare presence of a call option. We perform the analysis using Buy and hold abnormal return (BHAR) as the proxy for the long-term stock overperformance/underperformance. A sample of floating rate notes issued (1654) from 1992 to 2007, a period of high interest rates, reveals significant overperformance by the floating rate notes issuing firms in the high-rate paradigm. High growth firms, in the high-rate environment, significantly benefit from the floating rate provision which is less restrictive and less costly than the call option, which typically provides call protection period and pays a call premium. Floating rate provision better mitigates the interest rate risk for the firms in the high-rate environment. We find that the smaller, high growth, higher leverage, less profitable firms with greater agency issues benefit more from issuing FRNs in the high-rate environment. Our study has relevance to the stock portfolio construction and performance. We also perform a comparative analysis using the sample of floating rate notes issued (270) during 2008 to 2018, a period of low interest rates, and find stock underperformance. The implications are that the call option likely is a better choice for the firm since the firm preserves the right to forego exercising the option.

This paper aims to analyse the effects of financial statement indicators and off-balance sheet items affecting risk measures among Indian banks employing both panel data regression and a non-parametric decision tree approach. We explore the effects of bank size, leverage, exposure to contingent liabilities including off-balance sheet derivatives usage and macroeconomic factors on risk measures for banks. In this paper, it is also aimed to examine the effects of the major financial liberalization policy period in the domestic market in India that started in the mid-1990s and ended around 2004 as well as impacts of the 2008 global financial crisis on the risk measures of banks operating in India.  As risk measures, we present a comparative analysis of liquidity, solvency, and interest rate risk measures of Indian banks across public (government) and private ownership categories. Main findings from our study demonstrate (i) significant impact of capital adequacy and the bank size on all the risk measures, (ii) contingent liabilities (including derivatives usage) at banks is observed to significantly impact the asset management measure of liquidity risk and the solvency risk of banks, (iii) GDP growth is observed to impact the asset management and liability management measure of liquidity risk, (iv) the global financial crisis is found to have a significant impact on the liquidity risk measures and interest rate risk, but a weak effect on solvency risk of Indian banks, (v) bank ownership category (government owned versus private sector banks) is observed to have a significant impact on all the risk measures, and finally (vi) financial liberalization reforms had a highly significant effect on the liquidity risk at banks.

The crux of bank accounting is how to measure and disclose ex ante credit risk, as loan yields and cost of funds are determined by managerial effectiveness and the financial market. This paper examines how the practice of setting up provisions for loan losses by bank managers had changed to preserve regulatory capitals around the 2008 financial crisis. This paper examines the empirical relationship between ex ante credit loss, which is proxied by loan losses provisions, and realized credit loss, which is measured by net charge-off. The empirical relations are examined before, during, and after the 2008 financial crisis to find the patterns of prediction errors of the incurred loss model. This paper obtains evidence that the empirical relation between non-performing assets and provisions for loan losses weakened at the time of a financial crisis. The relations of net charge-offs and allowance for loan losses on provisions for loan losses amplified during a financial crisis by accounting design. After the financial crisis is over, the empirical relation between non-performing assets and provisions for loan losses does not return back to the pre-crisis relation, but to a different, new post-crisis relation. This paper obtains evidence that financially stable banks in terms of the tier 1 capital ratio, return on assets, market-to-book ratio, or dividend payout ratio tend to adjust provisions for loan losses in a larger scale in response to a financial crisis than less stable banks.

Advocates of blockchain claim widespread impact will be forthcoming shortly. However, the path of innovation in blockchain is uncharted. Investors will assess where blockchain innovation will profit first and most. The timing and impact of each blockchain innovation is a key consideration for business managers. Link, Ruhm, and Siegel (2014) suggest private equity investments forecast which innovations are likely to succeed. Previous research on private equity gives insight on why that ownership structure is especially successful. Private equity investments are collected for two periods and categorized according to basic blockchain components, basic cryptocurrency payment components, and decentralized applications, particularly applications in financial services. The results suggest investors have acted prudently, investing strongly in building blocks, payment systems and fundamental applications, showing a primary emphasis on refining blockchain and realizing standard blockchain protocols before investing in highly complex applications. Further, financial services applications dominate, suggesting investors see financial services as far and away the most likely industry for imminent deconstruction.

To improve audit reports' transparency and information content, China implemented new auditing standards in 2017.  The standards, which include disclosing key audit matters, were applied to A+H share companies in 2017 and A-share companies in 2018.  This paper uses A+H-share companies as the experimental group and A-share companies as the control group and applies the difference-in-differences method to test the market response to the new auditing standards.  We find a statistically significant positive cumulative abnormal return (CAR) during the report release event window for the A+H share companies.  The results indicate a greater investor reaction to the release of audit reports under the new standards implying that the audit reforms enhanced the information of the reports.  Furthermore, the positive CAR indicates that the reports reassured investors that the audit did not reveal significant problems or that existing weaknesses were addressed.  We also found a statistically insignificant difference in the volatility of stock prices during the event window for the experimental and control group.