Have SFAS 166 and SFAS 167 improved the financial reporting for securitizations?

Critics have alleged that securitization accounting prior to 2010 was among the causes of the recent financial crisis. In response to this criticism, the Financial Accounting Standards Board (FASB) implemented two new accounting standards, SFAS 166 and SFAS 167, to improve the financial reporting for securitizations. Bank regulators have stated their belief that SFAS 166/167 will result in a consolidated balance sheet (and risk-based capital ratios based thereupon) that better reflects a bank's exposure to risk related to securitized assets. We document that, by ceding retained power or influence through the servicing/special servicing functions to third parties, SFAS 166/167 resulted in real effects to the extent that banks (particularly those that were weakly capitalized) achieved their accounting objectives in the post-SFAS 166/167 period through legitimate transaction structuring in line with the intent of the new rules. Further, we use capital market participants’ assessments of risk retention by sponsoring banks as a benchmark, and provide evidence consistent with bank regulators’ beliefs. In particular, following SFAS 166/167, equity investors of sponsoring banks do not consider (consider) as risk relevant securitized assets that receive off-balance sheet (on-balance sheet) treatment. Securitized assets that are consolidated under SFAS 166/167 exhibit the same risk relevance as assets that are not securitized, despite contractual provisions that would seem to imply substantial risk transfer.     

Analyst Report Readability

Using an extensive database of 356,463 sell‐side equity analysts' reports from 2002 to 2009, this study is one of the first to analyze the readability of analysts' reports. We first examine the determinants of variations in analyst report readability. Using several proxies for ability, we show that reports are more readable when issued by analysts with higher ability. Second, we test the relation between analysts' report readability and stock trading volume reactions. We find that trading volume reactions increase with the readability of analysts' text, consistent with theoretical models that predict that more precise information (and hence more informative signals) results in investors' initiating trades. These results support the view that the readability of analysts' reports is important to analysts and capital market participants.     

Concurrent validity of a measure of innovative cognitive style

Identifying innovative consumer segments remains an important goal for marketers of new products. This article examines the merits of a recently developed marketing oriented scale, called “open processing”, which is purported to measure an individual's openness or cautiousness tendencies with regard to new products, new sensations, new experiences, and information about them. In a test of the scale's concurrent validity, using self reports of new product trail/purchase behavior among female shoppers, the study found open processors to be more innovative than cautious processors, as was predicted. The study also explores the relationships between open processing, innovative behavior, and various demographic variables. Results indicated that (1) open processing is almost as strong a predictor of innovativeness as four commonly used demographic variables combined; and (2) that open processing is an influential moderator of the relationship between demographics and innovative behavior. Internorth, Inc.     

Utilization of family-friendly policies in Hong Kong

Employees in Hong Kong, like those in many other industrialized societies, face the competing demands of work and family. Long working hours and the associated problem of work–family conflict is a serious problem for the workforce. Although a number of family-friendly policies, such as the five-day working week, paternal leave and so on, have been introduced, they are not necessarily used to their fullest extent. This paper examines the utilization of family-friendly incentives using a telephone survey of 661 employees in Hong Kong with access to such measures. Its major strength is the use of a well-established model of health care utilization, the Andersen model, to conceptualize the factors associated with the uptake of family-friendly policies. The results indicate that the Andersen model works very well in this context, and further demonstrate that access to family-friendly policies in Hong Kong is not equitable. The study makes a number of significant contributions to the literature on work–life balance and the uptake of supportive measures, and shows that enabling (such as perceived effectiveness) rather than need factors explain most of the variance in such use.     

Expectations and performance: assessment of public service training in Hong Kong

There are different ways in which training providers and recipients assess the value and outcome of training programmes. Generally, evaluations by clients of training services in the public sector do not receive serious attention as one cohort of officials succeeds another. Such an approach restricts the prospect of improvement, particularly since the providers are not subjected to undergo self-assessment of their programmes. This article seeks to achieve a better understanding of the assessment by soliciting opinions of both clients and providers of training programmes offered by the Civil Service Training and Development Institute in Hong Kong. The views of both the trainers and recipients were collected through a number of surveys and interviews. The response from trainees and trainers reveal significant differences about the expectations and actual content of the training programmes. Interestingly, there were similarities as well in their assessment in some areas. A common position declared by the trainees is that training keeps them informed about the latest developments but does not help them to adjust to changing circumstances. The other complaint was that adequate training was not provided for performing on the job. Trainers expressed different views, but agreed on the fact that the institute is unable to cope with the task and responsibility of training the entire public service and conceded that it is difficult to anticipate the future training needs in the rapidly changing environment in which public administration takes place.     

Economic evaluation of ezetimibe treatment in combination with statin therapy in the United States

Aims: This study assessed the cost-effectiveness of ezetimibe with statin therapy vs statin monotherapy from a US payer perspective, assuming the impending patent expiration of ezetimibe.

Methods: A Markov-like economic model consisting of 28 distinct health states was used. Model population data were obtained from US linked claims and electronic medical records, with inclusion criteria based on diagnostic guidelines. Inputs came from recent clinical trials, meta-analyses, and cost-effectiveness analyses. The base-case scenario was used to evaluate the cost-effectiveness of adding ezetimibe 10?mg to statin in patients aged 35–74 years with a history of coronary heart disease (CHD) and/or stroke, and with low-density lipoprotein cholesterol (LDL-C) levels ≥70?mg/dL over a lifetime horizon, assuming a 90% price reduction of ezetimibe after 1 year to take into account the impending patent expiration in the second quarter of 2017. Sub-group analyses included patients with LDL-C levels ≥100?mg/dL and patients with diabetes with LDL-C levels ≥70?mg/dL.

Results: The lifetime discounted incremental cost-effectiveness ratio (ICER) for ezetimibe added to statin was $9,149 per quality-adjusted life year (QALY) for the base-case scenario. For patients with LDL-C levels ≥100?mg/dL, the ICER was $839/QALY; for those with diabetes and LDL-C levels ≥70?mg/dL, it was $560/QALY. One-way sensitivity analyses showed that the model was sensitive to changes in cost of ezetimibe, rate reduction of non-fatal CHD, and utility weight for non-fatal CHD in the base-case and sub-group analyses.

Limitations: Indirect costs or treatment discontinuation estimation were not included.

Conclusions: Compared with statin monotherapy, ezetimibe with statin therapy was cost-effective for secondary prevention of CHD and stroke and for primary prevention of these conditions in patients whose LDL-C levels are ≥100?mg/dL and in patients with diabetes, taking into account a 90% cost reduction for ezetimibe.     

The risk-relevance of securitizations during the recent financial crisis

We investigate changes in the risk-relevance of securitized subprime, other nonconforming, and commercial mortgages for sponsor-originators during the recent financial crisis. Using the volatility of realized stock returns, option-implied volatility, and credit spreads, we observe a pronounced increase in the risk-relevance of subprime securitizations as early as 2006. Furthermore, reflecting the evolution of the financial crisis in waves, we find that investors recognized the increased credit risk of other nonconforming and commercial mortgage securitizations as the financial crisis progressed. Additional analyses show that risk-relevance varies cross-sectionally with structural characteristics such as monoline credit-enhancement and the presence of special servicers for commercial mortgage securitizations. Our results inform the current debates on the opacity of securitization structures and highlight the need to take into account cross-sectional and inter-temporal heterogeneity in risk-relevance across securitized asset classes and securitization characteristics (e.g., quality and type of collateral and transaction structure).     

A comparative study of cross-selling practices in public and private sector banks in India

This paper is a study of cross-selling practices in Indian public and private sector banks through the case study method. The study revealed that cross-selling practices in public sector and private sector banks are quite different. These differences emerge mainly from their different philosophy, background and distinct target customer segments. However, both sectors can learn from each other; public sector banks can introduce specialised training and incentives, whereas private sector banks need to introduce appropriate control mechanisms and avoid indiscriminate cross-selling. The paper also brings out the elements of successful cross-selling in India.     

Fundamental analysis of banks: the use of financial statement information to screen winners from losers

This study investigates the efficacy of a fundamental analysis-based approach to screen U.S. bank stocks. We construct an index (BSCORE) based on fourteen bank–specific valuation signals. We document a positive association between BSCORE and future profitability changes, as well as current and one-year-ahead stock returns, implying that BSCORE captures forward looking information that the markets are yet to impound. A hedge strategy based on BSCORE yields positive hedge returns for all but two years during our 1994–2014 sample period. Results are robust to partitions of size, analyst following, and exchange listing, and persist after adjusting for risk factors. We further document a positive relation between BSCORE and future analyst forecast surprises as well as earnings announcement period returns, and a negative relation between BSCORE and future performance-based delistings. Overall, our results show that a fundamental analysis-based approach can provide useful insights for analyzing banks.     

Private company finance and financial reporting

This article provides a comprehensive assessment of private firms’ financing sources and their relation with financial reporting practices. We consider debt financing (bank financing, leasing, and government guarantees), equity financing (family ownership, government ownership, employee ownership, and private-equity financing), and trade credit (supplier credit and factoring). Our primary conclusions are that there is significant heterogeneity in the way in which private companies are financed that is influenced by their specific business contexts, and that this heterogeneity in financing is associated with differential demand for and supply of financial reporting.