Disclosure incentives when competing firms have common ownership

This paper examines whether common ownership – i.e., instances where investors simultaneously own significant stakes in competing firms – affects voluntary disclosure. We argue that common ownership (i) reduces proprietary cost concerns of disclosure, and (ii) incentivizes firms to “internalize” the externality benefits of their disclosure for co-owned peer firms. Accordingly, we find a positive relation between common ownership and disclosure. Evidence from cross-sectional tests and a quasi-natural experiment based on financial institution mergers help mitigate concerns that our results are explained by an omitted variable bias or reverse causality. Finally, we find that common ownership is associated with increased market liquidity.     

A General Method of Deriving the Inefficiencies of Banks from a Profit Function

This article develops a new method of estimating inefficiencies in joint production and shows that unlike the approaches utilized in the previous studies of inefficiency, this method maintains a consistent relationship between the error term of a profit function and the error terms of its price derivatives. A useful by-product of the method is a proof of a Hotelling-like lemma that relates stochastic input demand and output supply functions to stochastic profit functions. While the previous studies fit a single frontier to data on all firms, this paper estimates a frontier unique to every observed firm to allow each one to have a different potential of achieving maximal levels of profit. The new method is applied in the analysis of annual data, 1984–1989, for U.S. commercial banks. Both the analytical and numerical results of the paper show that the residual that the previous studies attribute to inefficiency includes the effects of excluded variables and of inaccuracies in the specified functional forms. Once accurate estimates of these effects are subtracted from the residual, the distortions in the measured inefficiencies should be considerably reduced. Consequently, this article considers how such estimates might be obtained.     

CEO's Religious Affiliation and Managerial Conservatism

We investigate whether managers' religious affiliations affect corporate decisions. We hand collect data on the religious affiliations of chief executive officers (CEOs) and find that firms with Catholic CEOs have less leverage, issue debt less often, increase business and geographic diversification, and invest less than firms with Protestant CEOs. We also find that the decisions of Catholic CEOs are associated with lower firm value. These corporate actions are also reflected in the CEOs’ personal decisions, such as owning fewer company stocks and playing less risky sports.     

Small Banks, Small Business, and Relationships: An Empirical Study of Lending to Small Farms

We examine small banks lending to small farms. We find that relationships, as measured by the length of tenure of farm operators, are positively related to bank lending. We also find that de novo banks have a positive tendency to lend to small farms. When existing relationships between borrowers and incumbent lenders are stronger, de novo banks have greater difficulties in lending to small farms. We further find that, even within the category of small banks, lending to small farms (as a percentage of a banks assets) tends to decrease as the bank increases in size.     

Multi-level inventory management decisions with transportation cost consideration

In this article we address specific inventory management decisions with transportation cost consideration in a multi-level environment consisting of a supplier–warehouse–retailers. We develop two models – namely, decentralized ordering model and centralized ordering model to investigate the effect of collective ordering by retailers on the total inventory cost of the system. A numerical study shows that the proposed model is robust and generates reasonable cost savings. The models have potential in several multi-level applications such as fresh or frozen food delivery to stores of different supermarkets or the supply of medicine to a number of hospitals from a wholesaler.     

Financial inclusion as a pathway to welfare enhancement and income equality: Micro-level evidence from Nigeria

While the importance of financial inclusion as a means of poverty and income inequality reduction has long been recognised, the paths to welfare enhancement and income equality through financial inclusion remain partially acknowledged. Using micro-level data on 1 750 rural Nigerian households, this study examines the finance-welfare nexus by constructing a multi-variable financial inclusion index. The results first show that financial inclusion exerts a strong positive influence on household welfare. However, the decomposition analysis shows that middle- and high-income households gain more from financial inclusion in comparison to the targeted low-income households. Second, informal livelihood strategies, such as environmental resource extraction, crops, and livestock production, revealed reduced welfare disparities across income distributions. Therefore, for financial inclusion to alleviate welfare inequality and ensure income convergence, rural financial markets must be redesigned to allow wider access to credit, specifically for low-income and vulnerable households.     

Predicting tail-related risk measures: The consequences of using GARCH filters for non-GARCH data

We investigate the consequences for Value-at-Risk and expected shortfall purposes of using a GARCH filter on various mis-specified processes. In general, we find that the McNeil and Frey (McNeil, A.J. and R. Frey, 2000, Estimation of Tail-Related Risk Measures for Heteroscedastic Financial Time Series: An Extreme Value Approach, Journal of Empirical Finance 7, 271–300.) two step procedure has very good forecasting properties. Using an unconditional non-filtered tail estimate also appears to perform satisfactorily for expected shortfall measurements but less so for VaR computations. Methods assuming specific densities such as the Gaussian or Student-t may yield wrong predictions. Thus, the use of an adequacy test for filtered data to given densities appears relevant. The paper builds on recent techniques to obtain thresholds for extreme value computations. Statistical tests for the expected shortfall, based on the circular bootstrap, are developed.     

Financial Liberalisation and Economic Development: An Assessment

Abstract.  The financial sector has always played a central role in economic development, but analysis of its precise role has been hampered by the emphasis on 'real' factors in the main stream of economic thought and the static nature of financial theory. Empirical studies confirm the importance of finance to economic development, but are indecisive on the efficaciousness of the widely advocated policies associated with financial liberalisation. To be successful, strategies for financial liberalisation must deal with problems generated by asymmetric information and have policies to promote competition, the disclosure of information and the maintenance of governmental integrity.     

UNOFFICIAL EXCHANGE RATES IN BANGLADESH: A COINTEGRATION ANALYSIS

This article estimates a structural model for unofficial market foreign exchange (forex) rates (E U ) and examines the stability of the forex market in Bangladesh using an autoregressive distributed lag approach to cointegration analysis on quarterly data from 1976Q2–1995Q2. It also compares the in-sample and out-of-sample (from 1995Q3–1999Q2) forecasting performances of the structural model with other timE-series models. With E U as a dependent variable and official exchange rates (E O ) , money supply (M) , the difference between foreign and domestic interest rates (I) , forex reserves relative to imports (Q) and political along with some structural factors (D85) as explanatory variables, a multivariate cointegrated relationship is found in which E O , Q , and I cause an appreciation and M and D85 cause a depreciation in E U . These results imply that the overvaluation of the official exchange rate, increases in money supply, the paucity of official forex reserves, and structural factors are the main causes for the creation of the unofficial market for forex in Bangladesh. Results also reveal that the forex market in Bangladesh is stable during the sample period. The structural model performs well in in-sample prediction, and the random walk model performs best in out-of-sample forecasting.