The value of the banker–customer relationship: Experience of individual voluntary arrangements

Over the last 10–15 years, and in response to the huge growth in demand for unsecured consumer credit, UK banks have reviewed, automated, de-skilled and streamlined traditional credit assessment techniques. In pursuit of margin and market share, today's due diligence relies increasingly on centralised data and statistical ‘certainty’. During this same period the nature of the banks' ‘safety net’, the sanction of bankruptcy and court action, has changed too. The effect of this is not only to increase the potential for recovery, in respect of bad debts, but also to increase the moral hazard problem. However, increased risk is masked by creditor power in recovery situations. This paper draws on theoretical and empirical research from legal, ethical and economic viewpoints and suggests that a reappraisal of this aspect of the banker–customer relationship is essential to restore trust, prudence and long-term profitability.     

The role of investment banker directors in M&A

We examine how directors with investment banking experience affect firms? acquisition behavior. We find that firms with investment bankers on the board have a higher probability of making acquisitions. Furthermore, acquirers with investment banker directors experience higher announcement returns, pay lower takeover premiums and advisory fees, and exhibit superior long-run performance. Overall, our results suggest that directors with investment banking experience help firms make better acquisitions, both by identifying suitable targets and by reducing the cost of the deals.     

The marketing role of IPOs: evidence from internet stocks

This paper explores the potential marketing benefits of going public and of IPO underpricing. We examine the impact of IPO underpricing on website traffic, which is a direct measure of product market performance for internet firms. If underpricing attracts media attention and creates valuable publicity, we expect an increase in web traffic following the IPO. We find that web traffic growth in the month after the IPO is positively and significantly associated with initial returns, and the effect is economically significant. We also investigate media reaction to initial returns for a broader sample of IPOs. The results suggest that the marketing benefits of underpricing extend beyond the internet sector and the “hot issues” market of the late 1990s.     

Exploring the relationship between strategic performance measurement systems and managers' creativity: the mediating role of psychological empowerment and organisational learning

This study explores whether strategic performance measurement systems (SPMSs) are linked to managers' creativity through two mediating variables—organisational learning and psychological empowerment. Using data collected from 92 senior production managers in Australian manufacturing organisations, the study tests these links using a partial least squares structural model. The results from the structural model indicate that SPMSs are indirectly related to the managers' creativity through organisational learning and psychological empowerment. The study also finds that organisational learning is both directly related to creativity, and indirectly related to psychological empowerment. Further, the potential implications for empirical research are discussed.     

The merchant banker, the broker and the company chairman: A new issue case study

This paper explores the roles of a merchant banker, Everard Hambro, and the chairmen of two companies, Thames Iron and Trollope, Colls & Co., in the restructuring of their companies at the beginning of the twentieth century. Their correspondence provides evidence that the choice of corporate capital structure had little to do with company needs or risk characteristics. Instead, Hambro, in concert with stockbrokers, concentrated on ensuring that the securities issued conformed in amount, type and price to market norms, including the avoidance of stock watering. The company chairmen concentrated on ensuring that they retained control and that the new issues were deemed a success.     

The impact of interactive and diagnostic levers of eco-control on eco-innovation: The mediating role of employee environmental citizenship behaviour

The study contributes to the management control system (MCS), environmental and behavioural reaction literature by examining the mediating role of employee environmental citizenship behaviour on the association between the interactive and diagnostic use of eco-control with eco-innovation. Based on an empirical analysis of 406 Australian organisations, the results indicate that employee environmental citizenship behaviour mediates the effect of both the interactive and diagnostic use of eco-control on eco-innovation (specifically, eco-product innovation). The findings highlight the importance of eco-controls and employee behaviour, specifically employee environmental citizenship behaviour, in influencing eco-innovation.     

The relationship between the frequency of news release and the information asymmetry: The role of uninformed trading

This paper shows that the degree of information asymmetry is lower for firms with more frequent news releases. The relation holds for various measures of information asymmetry such as the probability of information-based trading (PIN), permanent price impact, and adverse selection component of bid-ask spread, even after adjusting for endogeneity between news release and information asymmetry. By decomposing the PIN into intensities of uninformed and informed trades, similarly to Brown and Hillegeist (2007), we find that intensity of uninformed trading increases much more than that of informed trading for firms with more frequent news releases. As a result, information asymmetry, as is measured by PIN, decreases for such firms due to the large increase in the intensity of uninformed trading. Our findings highlight not only the importance of news releases in leveling the playing field of investors but also the role of uninformed investors in reducing trading cost due to information asymmetry.     

The role of manufacturing practices in mediating the impact of activity-based costing on plant performance

We study the impact of activity-based costing (ABC) on adoption of world-class manufacturing (WCM) practices and plant performance. In contrast to earlier research that estimates the direct impact of ABC on plant performance, we develop an alternative research model to study the role of world-class manufacturing practices as a mediator of the impact of ABC. Analysis of data from a large cross-sectional sample of US manufacturing plants indicates that ABC has no significant direct impact on plant performance, as measured by improvements in unit manufacturing costs, cycle time, and product quality. We find, however, that WCM practices completely mediate the positive impact of ABC on plant performance, and thus advanced manufacturing capabilities represent a critical missing link in understanding the overall impact of ABC. Our results provide a different conceptual lens to evaluate the relationship between ABC adoption and plant performance, and suggest that ABC adoption by itself does not improve plant performance.     

The effect of automated service quality on bank financial performance and the mediating role of customer retention

The impact of automated service quality on bank financial performance and the mediating role of customer retention have received little attention, as scholars have focused on issues of usability and measurement. This study begins by showing the impact of technology on the way banks conduct business and proceeds to discuss automated service quality definitions and the potential influence of automated service quality on retention and financial performance. A mediating model that links service quality to bank financial performance through customer retention in the automated service context is proposed. The results of this empirical study confirm the role of customer retention as a mediator in the effect of automated service quality on financial performance. Implications of the findings are discussed and the limitations of the study and the potential for future research are considered.     

The cost of equity of internet stocks: a downside risk approach

Beta as a measure of risk has been under fire for many years. Although practitioners still widely use the CAPM to estimate the cost of equity of companies, they are aware of its problems and are looking for alternatives. A possible alternative is to estimate the cost of equity based on the semideviation, a well-known and intuitively plausible measure of downside risk. Complementing evidence reported elsewhere about the ability of the semideviation to explain the cross-section of returns in emerging markets and that of industries in emerging markets, this article reports results showing that the semideviation also explains the cross-section of Internet stock returns.     

The mediating effect of REM on the relationship between CEO overconfidence and subsequent firm performance moderated by IFRS adoption: A moderated-mediation analysis

The present paper is pursuing a new direction in the analysis of behavioral finance based on examining whether future performance of the firm is related to overconfidence displayed by the Chief Executive Officer (CEO). We suggest two channels for this relationship, real earnings management (REM) and the mandatory IFRS adoption. First, examining the impact of IFRS adoption on firms’ future performance, we find that overconfident CEOs who do not adopt IFRS exhibit poorer future performance. Other interactions related to overconfidence and IFRS are not significant. Second, examining the relationship between overconfidence and IFRS adoption on REM, we find that overconfident CEOs indulge in higher REM than non-overconfident CEOs. Further, overconfident CEOs who adopt IFRS display greater REM than do those who not adopt IFRS. Therefore, we prove that the indirect effect of CEO overconfidence on the subsequent firm performance through REM is contingent on the mandatory IFRS adoption.     

The mediating role of happiness on the effect of locomotion and effort on salesperson’s performance and cross-selling: the case of financial insurance

In this study, the authors propose a theoretical framework and show how salespeople’s locomotion orientation and effort increase financial sales outcomes (e.g., performance and cross-selling). We propose that a salesperson’s happiness plays a mediating mechanism in these main effects. The authors collected data from two samples. In Study 1, the authors collected data from financial insurance brokers, which worked as a link between insurance companies and customers. In Study 2, the authors analyzed answers from salespeople working on home improvement and construction products and services. First, the results demonstrate that the salespersons’ locomotion (an orientation toward a behavior), effort, and happiness increased sales performance (main effects). Second, salespersons’ locomotion and effort have an indirect effect through individuals’ happiness on our dependent variables, such as sales performance, product performance and cross-selling. Firms can improve individuals’ locomotion and effort by developing goal setting and goal striving.

     

Executive compensation and risk: The case of internet firms

A major prediction of agency theory is that there is a trade-off between risk and incentive compensation. Aggarwal and Samwick (1999) [Aggarwal, R., Samwick, A., 1999. The other side of the trade-off: the impact of risk on executive compensation. Journal of Political Economy, 107, 65–105.] directly test and find results consistent with agency theory—pay-performance sensitivity is decreasing in risk. However, Prendergast, 2002, Prendergast, 2000 [Prendergast, C. 2002. The tenuous trade-off between risk and incentives. Journal of Political Economy 110 (5), 1071–1102; Prendergast, C. 2000. What trade-off risk and incentives? The American Economic Review 90 (2), 421–425.] offers a number of reasons why the sensitivity of pay to performance can be higher in risky environments. We use data from a sample of Internet firms for 1997–1999 to provide empirical evidence on these competing arguments regarding the relation between risk and CEO compensation. Consistent with Aggarwal and Samwick (1999), our results show that pay–performance sensitivity declines with increases in variance in a base model. After controlling for size, we find that pay–performance sensitivity is positively related to risk, consistent with the theoretical predictions in Prendergast, 2002, Prendergast, 2000. However, sensitivity tests in later periods show that the Aggarwal and Samwick (1999) results are more robust to changes in the economic environment.     

Taming polysemous signals: The role of marketing intensity on the relationship between financial leverage and firm performance

This study traces the degree of integration and volatility spillover effect between the Pakistani and leading foreign stock markets by analyzing the Meteor shower hypothesis. Daily data are used from nine worldly equity markets (KSE 100, NIKKEI 225, HIS, S&P 500, NASDAQ 100, DOW JONES, GADXI, FTSE 350 and DFMGI) for the period of 2005 to 2014. First, we used the whole data set and after that we split data set into two subsets, First subset of data contains the era of global financial crisis of 2008 from 2005 to 2009 and Second subset is after global financial crisis time period from 2010 to 2014 (The global crisis prevailed till end of 2009). By following the Hamao et al. (1990) technique the univariate GARCH type models are employed to explore the dynamic linkages between Pakistani and leading foreign stock markets. The results from whole data set illustrate that there is mixed co‐movements between leading foreign stock markets and Pakistani stock market. The results from both subsets provide an evidence that there is a unidirectional mean and volatility spillover effect from S&P 500, NASDAQ 100, DJI and DFMGI to KSE 100. Also we found bidirectional spillover effect between DFMGI and KSE 100 from both subsets of data. We concluded that there is only one indirect linkage through which may the information transmitted to KSE 100. This linkage is developed due to the co‐movement among KSE 100, DFMGI and NASDAQ 100 in crisis period. This integration between these markets may provide a sign of indirect linkage. It also exhibits the volatility in Pakistan stock market returns is instigated through direct effects as well as indirect effects. Our study brings important conclusions for financial institutions, portfolio managers, market players and academician to diagnose the nature and level of linkages between the financial markets.     

The adoption of internet banking: An institutional theory perspective

Several models have been proposed in the literature to understand technology acceptance in which social environmental factors are not primarily addressed. Drawing upon the social contagion theory and institutional theory, this study proposes a model to examine three social environmental factors of normative, coercive and mimetic pressures within the internet banking (IB) context. The model is tested using survey data from 124 respondents. The results reveal that normative and coercive pressures significantly influence the attitude and intention of adopting IB, while mimetic pressures appear not to. Attitude plays a mediating role between institutional pressures and IB adoption. This study spearheads an institutional analysis at the individual level within the IB context. The findings also provide valuable insights for bank managers to manage the IB services.     

Overlapping board connections with banker directors and corporate loan terms: Evidence from syndicated loans

I look at the relationship between corporate loan terms and board members' connections to bankers through employment on other boards, a connection relatively unaffected by confounding factors. Using syndicated loan data, I find that firms connected to bankers via other boards are more likely to borrow, and they receive cheaper pricing. However, loan maturity does not differ between connected and unconnected firms. During the 2007–2008 financial crisis loan availability declined for all firms, but connected firms continued to borrow and to receive lower spreads. Generally, my results support the importance of social connections in decreasing information asymmetry and reducing transaction costs.     

The role of accountability in determining the relationship between financial reporting quality and the performance of public organizations: Evidence from Vietnam

Drawing on the new public management and agency theory, this study examines the mediating role of accountability in the relationship between financial-reporting quality and the performance of public organizations. The research model and hypotheses tested with a survey of 177 responses obtained from accountants and managers working in the public sector in Vietnam. Our analysis shows that accountability has a mediating role on the relationship between financial-reporting quality and performance, with significant implications for public organizations seeking to improve both their financial-reporting quality and their organizational performance with better designed systems of accountability.     

The moderating role of board gender diversity on the relationship between firm opacity and stock returns

In this study, we examine the impact of board gender diversity on the association between firm opacity and stock price crash. We utilize the negative shock of the 2007–2008 financial crisis to capital markets to examine whether firms with gender-diverse boards witnessed lower stock price crashes due to their lower opacity ex ante. Using a sample of S&P 1500 firms spanning the period 2005–2008, we employ a difference-in-differences research design and find that firms with high opacity ex ante witness more negative returns ex post. We also find that gender-diverse firms ex ante witness less negative returns ex post. Finally, our analysis reveals the moderating role that board gender diversity plays in the association between firm opacity and stock returns around the financial crisis. We subject our results to a range of robustness checks, including instrumental variable regressions, matched-sample analyses, and a set of falsification and placebo tests. Overall, we provide evidence that board gender diversity is associated with increased transparency in financial reporting, which pays off in times of crisis.     

The role of a crisis in reshaping the role of accounting

Prior to 2001, international accounting standards (IAS) were insufficiently attractive to gain the support of US regulators. The potential role of IAS in the US gained prominence during a period of extreme financial reporting instability in 2001–2002. Emerging opinion increasingly upheld principles-based rather than rules-based accounting standards in the face of the financial reporting crisis. But to promote any active shift in the US position, an institutionally legitimate infrastructure for the international accounting standards setter had to be created. As this was taking shape, the globalisation of business activities grew with inter-organizational linkages and cross-national financial inter-dependencies and flows becoming increasingly complex. Given the extensively uncertain, uneven and constantly evolving nature of global business changes, the aptness of applying judgment in assessing financial performance and position rather than relying on the application of pre-defined rules continued to achieve wider acceptance. The argument is made in the paper that international financial reporting standards are today seen to fulfil a global risk mitigating role founded on a logic that had to first gain political and institutional legitimacy and that also had to be viewed as being responsive to perceived market imperatives.     

Investment in internet banking as a real option: theory and tests

This paper examines the optimal exercise of strategic real options to invest in Internet banking (IB) technology within a two-stage game, parameterized by the distribution of bank size and uncertainty over the profitability of investment, and empirically tests the results. The value of the strategic investment option to a strategically significant entrant into IB depends on both expected future profits as well as the variance of those profits. Expected profits to an entrant depend, in equilibrium, on its size, as measured by existing market share (concentration) or total assets, relative to its rivals. Conditional on the degree of uncertainty, larger banks should, as a consequence, exercise their options earlier than smaller banks, for purely strategic advantages, and act as market leaders in the provision of IB services. Like ordinary options, however, the value of the strategic investment option to both large and small banks increases in uncertainty, implying that early exercise will be more likely the more information is available about potential demand. We test these hypotheses on investment in IB services with data from a sample of 1618 commercial banks in the tenth Federal Reserve District during 1999. Consistent with our hypotheses, relative bank size, as measured by measures of concentration, and demographic information predictive of future demand both positively influence the probability of entry into IB in our sample.