Competition and risk in South East Asian commercial banking

This article investigates the effects of competition on bank risk taking behaviour in four South East Asian countries (Indonesia, Malaysia, Philippines and Vietnam). Our main finding is that competition does not increase bank risk-taking behaviour and the results appear robust to different model specifications, estimation approaches and variable construction. We also find that concentration is inversely related to bank risk whereas regulatory restrictions positively influence bank risk-taking.     

Product mix,transactions and cost behaviour: a study of South African bank branches

This paper utilizes microeconomic theory and a panel data set to assess the impact of product mix and transactions on cost behaviour of bank branches in South Africa over the short and long‐term. Estimates of properties of concavity and monotonocity indicate that the cost functions of typical bank branches in South Africa are neither consistent with short‐term nor long‐term cost‐minimizing behaviour. This corroborates earlier findings which indicate that South African banks have low production efficiency and high market power. In addition the cost functions and two production‐output type indices indicate that overall, the intermediation‐output type mix (foreign exchange and custodial services) has a more significant effect on cost behaviour than the production‐output type mix (cheque and deposit accounts). The variety of production‐output type services provided by a branch appears to have limited effect on costs. However the financial value of production‐output type transactions has an impact on costs while the financial value of intermediation type products does not. Branches that provide intermediation‐output type products tend to have higher variable costs – the key determinant of costs is the number of transactions.     

Determinants of income diversification: evidence from Chinese banks

This article presents an analysis of the determinants of Chinese commercial banks’ income diversification decisions. Using a panel dataset comprising 88 Chinese domestic banks from 2003 to 2010, we find that bank diversification reflects a variety of managerial abilities: insolvency risks, cost, capital position, asset scale and ownership structure. A larger ratio of banking assets to gross domestic product and lower interest spread lead to a higher level of diversification. Moreover, national banks and regional banks have different strategic responses to the macroeconomic, and indeed, regulatory environment. Resisting shocks from the banking sector and the macro economy, and supplementing liquidity shortages from intermediation business seem to be the driving forces of national banks to operate in non-banking sectors.     

Conditional risk and return in Asian emerging markets: evidence from the banking sector

Previous studies reach no consensus on the relationship between risk and return using data from one market. This study argues that the market factor should be noticed in assessing the risk-return relationship in a partially integrated emerging market. The analysis aims to provide new insight into the nature of the risk-return relationship by a conditional factor GARCH-M framework that controls for time-series effects, to investigate the banking sector in five Asian emerging markets of China, Hong Kong, Indonesia, Malaysia and Taiwan during the period 1995 to 2004. Finally, the study provides evidence on these relations before and after the Asian financial crisis of 1997. The results are generally consistent across the markets and with expectations, and have implications for empirical assessments of the risk-return relationship and diversification.     

The quality and quantity of bank intermediation and economic growth: evidence from Asia Pacific

We investigate the impact of the quantity and quality of bank intermediation on economic growth across 14 Asia-Pacific economies over 2003–2015. Measures of bank shareholder value efficiency as well as profit and cost efficiency are used as indicators of intermediation quality. We also employ measures of liquidity creation (fat and nonfat) as a proxy for the quantity of bank intermediation. Our main finding is that the quality of bank intermediation (enhanced credit allocation) is a driver of economic growth in developed Asia-Pacific economies, whereas it is the quantity of bank intermediation (capital accumulation) that positively influences growth in developing nations. From a policy perspective, our findings suggest that policymakers in developed nations should concentrate their efforts on reforms that enhance bank efficiency. Second, reforms that stimulate capital accumulation should be encouraged in developing economies because this is the main channel that spurs economic growth.     

On Corruption and Countervailing Actions in Three South Asian Nations

We argue that readily available data and information in newspaper stories enable one to discern the nature and patterns of corruption and to understand actions taken to combat corruption. We analyze and compare numerous newspaper reports of corruption in India, Sri Lanka, and Bangladesh. Using analysis derived from existing theory of corruption, we demonstrate how information in news accounts improves our understanding of corruption. Bangladesh had more coercive corruption, with countervailing actions dominated by direct actions of victims. In India and Sri Lanka, corruption was generally collusive, with countervailing actions on behalf of victims frequently leading to legal actions and investigative reports.     

Gender and forest conservation: The impact of women's participation in community forest governance

Would enhancing women's presence in community institutions of forest governance improve resource conservation and regeneration? This paper focuses on this little addressed question. Based on the author's primary data on communities managing their local forests in parts of India and Nepal, it statistically assesses whether the gender composition of a local forest management group affects forest conservation outcomes, after controlling for other characteristics of the management group, aspects of institutional functioning, forest and population characteristics, and related factors. It is found that groups with a high proportion of women in their executive committee (EC)—the principal decision-making body—show significantly greater improvements in forest condition in both regions. Moreover, groups with all-women ECs in the Nepal sample have better forest regeneration and canopy growth than other groups, despite receiving much smaller and more degraded forests. Older EC members, especially older women, also make a particular difference, as does employing a guard. The beneficial impact of women's presence on conservation outcomes is attributable especially to women's contributions to improved forest protection and rule compliance. More opportunity for women to use their knowledge of plant species and methods of product extraction, as well as greater cooperation among women, are also likely contributory factors.     

The Dowry Gift in South Asia: An Institution on the Intersection of Market and Patriarchy

Abstract

Dowry refers to marriage gifts that are instrumental to the negotiation of the marriage contract. Historically, the dowry gift was constituted by law across the Roman empire. While dowry has become largely irrelevant in Europe in contemporary times, it is still pervasive across the Brahmanical Hindu societies of South Asia. Moreover, what was traditionally token gifts from friends and well-wishers has taken on the form of “new dowry” since the colonial period. “New dowry” is heavily composed of cash and market goods, including land and is frequently accompanied by violence against new brides when their families fail to make larger dowry gifts with higher market value. This article examines the evolution of “new dowry” through a Polanyian lens. Unlike the neoclassical Beckerian approach which takes an ahistorical outlook to marriage as a “market” for matching partners and dowry as a market price, the substantivist lens à la Polanyi investigates the historical evolution of “new dowry” through the advent of market processes in the colonial period and the countermovement of legal reform in the post-colonial period.     

Agricultural intensification, irrigation and the environment in South Asia: Issues and policy options

High population pressure and the rapid pace of human activity including urbanization, industrialization and other economic activities have led to a dwindling supply of arable land per capita and a process of agricultural intensification in South Asia. While this process has significantly increased food production to feed the growing population, it has also entailed considerable damage to the physical environment, including degradation and depletion of natural resources and unsustainable use of land and water resources. This paper employs the analytical tools of economic theory, environmental and ecological economics to model the impact of irrigation in South Asia. It underscores the need for an eclectic approach to policy responses stemming from private and common property rights theories, externality theory and sustainability theory with a view to environmentalizing agricultural development.     

Corporate governance and efficiency in banking: evidence from emerging economies

ABSTRACT

This article investigates the impact of corporate governance on bank efficiency across a sample of 139 commercial banks from 17 countries of Central and Eastern Europe during the period 2005–2012. Data on governance characteristics are hand-collected from banks’ reports. The empirical findings indicate that implementing rigorous corporate governance structures is associated with higher costs for banks and a lower level of efficiency. However, during the crisis, a tight governance mechanism significantly increases banks’ cost and technical efficiencies. We also show that prudent risk management is associated with both higher cost and technical efficiency for more capitalized banks, while rigid supervisory boards are linked with greater technical efficiency for more capitalized banks.     

Intellectual capital and firm performance: evidence from Indian banking sector

In the aftermath of the 2008 financial crisis, the entire Indian banking industry was paralysed and their performance was shattered by the unfolding of enormous cases of Non-performing Assets (NPA). The study estimates the operating efficiency of 40 Indian banks for 5 years (2011–15) as a proxy of performance measure using the output-oriented DEA-BCC model. We find that nearly 62% of the state-owned banks and 47% of the private banks are inefficient indicating that the inefficient banks need to reduce their inputs or improve their output to become efficient. The study further investigates the relationship between intellectual capital (IC) and bank performance using a truncated regression model. The regression results show that out of the three components of intellectual capital, only human capital efficiency is positively and significantly associated with operational efficiency while structural capital and finance capital have a negative impact on the efficiency of banks. The study concludes that to achieve competitive edge banks should invest in their human capital. The results are robust in the case of financial variables taken as a proxy for performance.     

Economic reforms and human development: evidence from transition economies

Do market-oriented economic reforms result in higher levels of human well-being? This article studies the impact of macro-level institutional and infrastructure reforms on the economic, educational and health dimensions of human well-being among 25 transition economies. We use panel data econometrics based on the LSDVC technique to analyse the effects of market-oriented reforms on the human development index (HDI), as a measure of human well-being, from 1992 to 2007. The results show the complexity of reform impacts in transition countries. They show that institutional and economic reforms led to positive economic effect and significant impacts on other dimensions of human development. We find some positive economic impacts from infrastructure sectors reforms. However, not every reform measure appears to generate positive impacts. Large-scale privatizations show negative effects in health and economic outcomes. The overall results show the importance of the interaction among different reform measures and the combined effect of these on human development.     

Taxation and household portfolio composition: US evidence from the 1980s and 1990s

This paper explores the relationship between household marginal income tax rates, the set of financial assets that households own, and the portfolio shares accounted for by each of these assets. It analyzes data from the 1983, 1989, 1992, 1995, and 1998 Surveys of Consumer Finances and develops a new algorithm for imputing federal marginal tax rates to households in these surveys. The empirical findings suggest that marginal tax rates have important effects on asset allocation decisions. The probability that a household owns tax-advantaged assets, such as tax-exempt bonds or assets held in tax-deferred accounts, is positively related to its tax rate on ordinary income. In addition, the portfolio share invested in corporate stock, which is taxed less heavily than interest bearing assets, is increasing in the household’s ordinary income tax rate. Holdings of heavily taxed assets, such as interest-bearing accounts, decline as a share of wealth as a household’s marginal tax rate increases.     

Liquidity risk and bank portfolio management in a financial system without deposit insurance: Empirical evidence from prewar Japan

Using data from prewar Japan, this paper investigates the impact of a liquidity shock induced by depositors' behavior on bank portfolio management during financial crises in a system lacking deposit insurance. It is found that banks reacted to the liquidity shock sensitively through an increase in their cash holdings not by liquidating bank loans but by selling securities in the financial market. Moreover, banks exposed to local financial contagion adjusted the liquidity of their portfolio mainly by actively selling and buying their securities in the financial market. Finally, there is no evidence to conclude that the existence of the lender of last resort mitigated the liquidity constraints in bank portfolio adjustments.     

Financial deregulation and productivity growth in banking sector: empirical evidence from Bangladesh

This article examines the effects of regulatory reform on productivity growth in the Bangladesh banking industry. We use a unique balanced panel dataset comprising bank-level annual data from the early deregulation year (1984) to the most recent available period (2012) from major commercial banks in Bangladesh. Applying the Färe-Primont index, the paper provides estimates of productivity growth and identifies sources of total factor productivity (TFP) change. Empirical results show the sample banks have experienced positive TFP change after the financial deregulation. On average, TFP growth is higher in private banks than their public sector counterparts in the post-reform period. In addition, the decomposition analysis shows technological progress is the main driver of productivity change. Similar results are obtained by using the stochastic frontier analysis (SFA). Thus, empirical results remain robust irrespective of the methodology used. The regression analysis finds a positive technical change in the first stage of the reform program, i.e. during the transition period, as leading banks employ advanced technology to compete with potential new entrants. The result also shows that the banking industry still remains concentrated within the state-owned banks.     

European financial crisis and bank productivity: evidence from Eastern European Countries

The paper examines the productivity levels of the largest banks operating in the Eastern European countries over the period of the ongoing European financial crisis. Specifically, the analysis covers the periods of U.S. subprime crisis, the global financial crisis and the sovereign debt crisis. By adopting a fully nonparametric framework, it provides a probabilistic version of a directional input-oriented Malmquist productivity index alongside with its main decomposition. The results from the analysis suggest that banks have faced a deterioration of their productivity levels between the examined periods. It is evident that during the initiation of European sovereign debt crisis, the banks have weakened their ability to utilize efficiently their inputs of production and their ability to realize scale economies.     

Product quality and competition: evidence from the broadband industry

Access to high-quality broadband internet is important in many different respects such as in communication, education, commerce and information acquisition. We investigate the relationship between the number of broadband providers in an area and the quality of broadband service provided where download speed is used as a proxy for quality. We find that increased competition in an area positively affects the access to fast download speeds. This finding is robust to three different top download speeds tested. Additionally, a theoretical model is provided which shows that competition can decrease the profits associated with offering slow speeds; this gives an incentive for providers to offer higher speeds as a way to increase profits.     

The lower bound and the causes of monetary policy inertia: evidence from Sweden

In 2009, in the midst of a global recession, Sweden’s Riksbank approached a lower bound on nominal interest rates. This encounter with the lower bound provides a natural experiment for investigating the causes of monetary policy inertia. To exploit this experiment, we estimate Taylor rules with Tobit specifications that permit both interest rate smoothing and persistent shocks (serial correlation) as explanations for inertia. The interest rate smoothing hypothesis leads to a specification in which lagged actual values of the dependent variable appear on the right-hand side of the Taylor rule, while the persistent shocks hypothesis leads to a specification in which lagged values of an unobserved latent dependent variable appear on the right-hand side of the Taylor rule. The divergence of actual and latent dependent variables that occurs at the lower bound provides leverage in distinguishing the two hypotheses. For a conventional Taylor rule, we find evidence of both sources of inertia. For a modified Taylor rule that includes a measure of financial stress, our evidence suggests that interest rate smoothing is the principal source of monetary policy inertia.     

The contribution of institutions, trade, and geography to the development process: How robust is the empirical evidence to variations in the sample?

This paper uses an influence spectrum to identify influential subsets in a stylized cross-country data set and finds that institutions, geography, and trade (policy), all appear to play a significant role in the development process for a relatively large sub-sample of countries. For example, equatorial distance, a proxy for geography, becomes positive and significant (originally negative and insignificant) after removing only eight countries or observations from the original sample of sixty-three, while controlling for institutions and trade. In fact, for this set of fifty-five countries all three variables have the correct sign and are statistically significant. As another example, the trade variable becomes positive and significant (originally insignificant) after removing only two countries from the original sample.First version received: May 2003/Final version received: February 2004     

Conspicuous consumption and “race”: Evidence from South Africa

A century ago, Thorstein Veblen introduced socially contingent consumption into the economic literature. This paper complements the scarce empirical literature by testing his conjecture on South African household data and finds that Black and Coloured households spend relatively more on visible consumption than comparable White households. Following the approach of Charles et al. (2009), this paper explores whether the differences in visible expenditures can be explained with a signaling model of status seeking. Moreover, it is assessed to which extent positional concerns motivate conspicuous consumption. Although the socially contingent share in visible consumption increases with income, different incentives to consume conspicuously seem to explain that, at every level of income, Black households spend relatively more on visible consumption than comparable White households. In contrast to the findings of Charles et al. (2009) where differential spending on conspicuous consumption can be found also within each group separately, the model's core hypothesis fails to hold within the group of White South Africans.