Bankruptcy prediction: Application of the Taylor's expansion in logistic regression

The purpose of the present study is to test whether Taylor's series expansion can be used to solve the problem associated with the functional form of bankruptcy prediction models. To avoid the problems associated with the normality of variables, the logistic model to describe the insolvency risk is applied. Taylor's expansion is then used to approximate the exponent of the logistic function, or the logit. The cash to total assets, cash flow to total assets, and shareholder's equity to total assets ratios operationalize the factors affecting the insolvency risk. The usefulness of Taylor's model in bankruptcy prediction is evaluated applying the logistic regression model to the data from the Compustat database. The classification accuracy in the test data for the first and second years before bankruptcy show that the classification accuracy of a simple financial ratio model can be increased using the second-order and interaction terms of these ratios. However, in the third year, for the test data, Taylor's expansion is not able to increase the classification accuracy when compared with the first-order model.     

Tournament behavior in Australian superannuation funds: A non-parametric analysis

Taylor's [Taylor, J. (2003). Risk-taking behavior in mutual fund tournaments, Journal of Economic Behavior and Organisation 50, 373–383] extension of the tournament model of Brown et al. [Brown, K. C., Harlow, W. V., Starks, L. T. (1996). Of tournaments and temptations: An analysis of managerial incentives in the mutual fund industry, Journal of Finance 15, 85–110] proposes that using an exogenous (endogenous) benchmark, will induce losing (winning) managers to gamble. This presents two competing testable hypotheses that are investigated in the current study. We use a sample period covering 1989 to 2001 of Australian multi-sector growth funds. We apply the non-parametric Cross-Product Ratio methodology. Generally, we find evidence in support of Taylor's model.     

Manifest anxiety,general self-efficacy and locus of control as determinants of personal and general risk perception

The hypothesis that risk perception is associated with differences in personality was proposed. Three personality variables were used, Rotter's Internal vs External Locus of Control Scale, Schwarzer's General Self-efficacy Scale and Taylor's Manifest Anxiety Scale. A scale asking for personal and general risk perception measured perceived risk. It was proposed that individuals low in anxiety, having an internal locus of control and high in self-efficacy should perceive general risks and personal risks higher than individuals high in anxiety and low in self-efficacy and having external locus of control should do. Fifty-nine business students responded to these three scales. The hypothesis was supported by the results and suggested that the personality measures and particularly anxiety were significantly associated to both personal and general risk perceptions.     

S -Convex Extrema,Taylor-Type Expansions and Stochastic Approximations

The present work studies s -convex orders using a remarkable probabilistic generalization of Taylor's theorem obtained by Massey & Whitt (1993) and further discussed by Lin (1994). We propose two methods for approximating a given risk with known first moments by means of s -convex extremal distributions. The goodness of those approximations is explored using stop-loss distances. Several applications show the interest of this approach in actuarial sciences.     

Moment generating functions of compound renewal sums with discounted claims

Léveillé & Garrido (2001a, 2001b) have obtained recursive formulas for the moments of compound renewal sums with discounted claims, which incorporate both, Andersen's (1957) generalization of the classical risk model, where the claim number process is an ordinary renewal process, and Taylor's (1979), where the joint effect of the claims cost inflation and investment income on a compound Poisson risk process is considered.

In this paper, assuming certain regularity conditions, we improve the preceding results by examining more deeply the asymptotic and finite time moment generating functions of the discounted aggregate claims process. Examples are given for claim inter-arrival times and claim severity following phase-type distributions, such as the Erlang case.     

An exact and explicit solution for the valuation of American put options

In this paper, an exact and explicit solution of the well-known Black–Scholes equation for the valuation of American put options is presented for the first time. To the best of the author's knowledge, a closed-form analytical formula has never been found for the valuation of American options of finite maturity, although there have been quite a few approximate solutions and numerical approaches proposed. The closed-form exact solution presented here is written in the form of a Taylor's series expansion, which contains infinitely many terms. However, only about 30 terms are actually needed to generate a convergent numerical solution if the solution of the corresponding European option is taken as the initial guess of the solution series. The optimal exercise boundary, which is the main difficulty of the problem, is found as an explicit function of the risk-free interest rate, the volatility and the time to expiration. A key feature of our solution procedure, which is based on the homotopy-analysis method, is the optimal exercise boundary being elegantly and temporarily removed in the solution process of each order, and, consequently, the solution of a linear problem can be analytically worked out at each order, resulting in a completely analytical and exact series-expansion solution for the optimal exercise boundary and the option price of American put options.     

Arbitrage violations and implied valuations: the option market

The ideas presented in this paper are those of the authors and not necessarily reflect the views of the National bank of Canada. Both authors thank the National Bank of Canada and the SSHRC of Canada for their help. Thanks are also due to Professor Y. Tian for his comments, and for participating, together with students of the Financial Engineering program at York University, in the data preparation and the execution of the Matlab programs. In this paper, we propose a necessary and sufficient condition for bid and ask prices of European options to be free of arbitrage, and derive from it an efficient numerical methodology to determine its satisfaction by a given set of prices. If the bid and ask prices satisfy the no-arbitrage (NA) condition, our methodology produces a vector of NA prices that lie between the bid and ask prices. Otherwise, our methodology generates a vector of arbitrage-free prices that is as close as possible, in some sense, to the bid–ask strip. The arbitrage-free prices detected by our methodology render the commonly used practice of using mid-points and then ‘cleaning’ arbitrage from them as unnecessary. Moreover, a vector of ‘cleaned’ prices obtained from mid-point prices may be outside the bid–ask spread even in an arbitrage-free market and, hence, in this case will not be representative of the current market. A new procedure of estimating implied valuation operators is also suggested here. This procedure is rooted in the economic properties of put and call prices and is based on Phillips and Taylor's approximation of a convex function. This approach is superior to common estimation techniques in that it produces an analytical expression for the implied valuation operator and is not data intensive as some other studies. Empirical findings for the new methods are documented and their economic implications are discussed.     

Audit firm's Confucianism and stock price crash risk: Evidence from China

This study examines the association between audit firm's Confucianism and stock price crash risk. We postulate that Confucian moral standards predict a mixed relationship between audit firm's Confucianism and stock price crash risk. Using a large sample of listed firms in China during 2006–2018, we find that audit firm's Confucianism is positively related with client's future stock price crash risk, implying that Confucianism of audit firm aggravates client's bad news hoarding behavior. The effect is more pronounced for client without female auditors and/or with closer personal relationship with auditors. Mechanism analysis shows that audit firm's Confucianism exacerbates crash risk by worsening audit quality and information transparency. Political discipline and external monitoring help to alleviate the negative influence of audit firm's Confucianism on stock price crash risk.     

我国传媒上市企业资本结构与公司绩效关系的实证研究

资本市场的大幅膨胀,传媒企业竞相上市,中国传媒行业掀起一波融资热潮。以我国的传媒行业2007～2009年数据为研究样本对我国传媒上市企业资本结构与公司绩效关系进行实证研究,结果表明,我国传媒业的资本结构与企业绩效之间存在负相关关系,此外,模型中加入的控制变量中股权集中度、公司成长性、资产流动性以及股权流动性与资本结构存在显著的线性相关性。     

Sovereign rating actions and the implied volatility of stock index options

This paper examines the interaction between the equity index option market and sovereign credit ratings. S&P and Moody's signals exhibit strong impact on option-implied volatility while Fitch's influence is less significant. Moody's downgrades reduce the market uncertainty over the rated countries' equity markets. Strong causal relationships are found between movements in the option-implied volatility and all credit signals released by S&P and Fitch, but only actual rating changes by Moody's, implying differences in rating agencies' policies. The presence of additional ratings tends to reduce market uncertainty. The findings highlight the importance of rating information in the price discovery process and offer policy implications.     

企业资金松紧度指标体系构建在宏观审慎管理中的应用研究

企业资金松紧度直接关系到企业生产经营的景气度,是宏观审慎政策的重要参考 指标。本文从宏、中、微观三个层面选取指标,创建了重庆市企业资金松紧度综合评价指数, 在此基础上建立预警机制,结合宏观审慎管理与企业资金之间的关系,实证分析了宏观审慎政 策工具（广义信贷与市场利率）对企业资金松紧度的影响以及企业资金松紧度对金融风险的影 响,最后进行评估总结,以期为宏观决策提供有益参考。     

Bond Covenants and Delegated Monitoring

This paper examines alternative contracting arrangements available to a firm seeking to finance an investment project. The authors consider the choice between loan contracts with covenants based on noisy indicators of the firm's financial health and loan contracts enforced by a monitoring specialist. In one interpretation, the specialist is a financial intermediary. The firm's choice is shown to depend upon the firm's credit rating, the accuracy of financial indicators of the firm's condition, the loss from premature liquidation of the firm's project, and the cost of monitoring.     

Can China Help Lower World Inflation?: A Panel Study

In this paper, the effect of China's imports on importing countries' inflation is examined. Using data from 1994 to 2003, it is argued that China's export surge is an important contributor to lowering inflation in importing countries. Using fixed and random effect models, we identify a statistically significant negative correlation between the share of a country's imports from China and its rate of inflation.     

Fair Value: Your Value or Mine? An Observation on the Ambiguity of the Fair Value Notion Illustrated by the Credit Crunch

Current International Financial Reporting Standards (IFRSs) define fair value as a transaction price. In imperfect markets, buyer's and seller's marginal prices, at which they are rationally willing to transact, differ. The transaction price can be any amount within the range between those prices. However, scenarios are conceivable in which no such range exists because the seller's marginal price exceeds the buyer's. In this scenario, no arm's length transactions between knowledgeable, willing parties are possible. Such a scenario can be likely characterised by low liquidity and/or high information asymmetry and seems to be broadly consistent with what is recently referred to as the ‘credit crunch’. Under this scenario, the IFRS definition of fair value is not readily applicable. Two views are possible: under view 1, fair value refers to the potential buyer's marginal price. Although fair value does always exist conceptually, it negates the notion of two rationally acting parties. View 2 acknowledges that no arm's length transaction is possible, resulting in the fair value notion not being applicable. If these two views are applied to the IFRS definition of an active market, view 1 results in markets that are always active. Only view 2 allows distinguishing between active and inactive markets.     

CFO's accounting talent,compensation and turnover

This paper builds on and contributes to the literature on Chief Financial Officer's (CFO) compensation and turnover. We contend that the accounting talent of CFOs can be measured by accounting errors that occur when CFOs implement accounting standards. We find (i) a positive association between the CFO's accounting talent and the CFO's compensation ex ante in the transition year; (ii) a positive association between the CFO's accounting talent and the CFO's bonus in the subsequent year (adoption year); and (iii) an inverse association between the CFO's accounting talent and CFO turnover in the subsequent year (adoption year).     

CEO's Operating Ability and the Association between Accruals and Future Cash Flows

This study investigates whether an individual CEO's operating ability, operationalized as the extent to which an individual CEO utilizes the company's assets efficiently to generate profits, explains the association between accruals and future cash flows. While this mapping can be driven by both the quality of accounting measurement and CEO operating ability, there is little empirical evidence on the latter link. After controlling for the CEO's accounting estimation ability, we find that the association between current period accruals and future cash flows is stronger when the CEO demonstrates superior operating ability. This suggests that a CEO's operating ability is an important determinant of the informativeness of current accruals for future cash flows.     

Domain knowledge,ability, and the principal's authority relations

I consider how different managerial traits affect the authority relation between a principal and his agent. An increase in the principal's domain knowledge—which enhances his capability to verify the agent's recommendations—leads to an increase in the proportion of the agent's recommendations that are approved, an increase in the agent's initiative, and is unambiguously beneficial to the principal and to the agent. In contrast, an increase in the principal's general ability to explore additional alternatives on his own leads to the principal making a larger proportion of the decisions. This discourages the agent's initiative and can adversely affect the principal.     

Bond vs stock market's Q: Testing for stability across frequencies and over time

In this paper we revisit the evidence recently provided by Philippon (2009) about the relationship among bond market's Q, stock market's Q and aggregate investments for the US. Specifically, we analyze the stability of the relationship between aggregate investment and the two measures of Q across frequencies and over time. We find that the relationship between aggregate investment and stock market's Q, in contrast to that with bond market's Q, is both frequency-dependent and time-varying. Both the successfulness of bond market's Q and the poor performance of the usual Tobin's Q can be explained by taking into account stability across frequencies of the first and instability over time of the latter.     

应计与真实盈余管理：替代抑或互补

基于中国转型经济特有的制度环境,考察应计与真实盈余管理之间的相互关系。结果表明,在中国市场上,应计与真实盈余管理之间存在"二元"关系,即替代关系和互补关系。具体而言,市场竞争压力在应计与真实盈余管理之间具有明显的成本比较优势,使得两者具有替代关系。控制利益、管制压力在应计与真实盈余管理之间不具有显著的成本比较优势,而是应计与真实盈余管理的驱动因素,使得两者具有互补关系。