State-controlled banks and income smoothing. Do politics matter?

This paper uses a new dataset to reassess the relationship between government ownership and income smoothing of commercial banks. We also evaluate how political connections affect the impact of government ownership on earnings management. We find that banks with more state-controlled shareholders located in developing countries tend to have more incentives to smooth income. The paper finds no significant difference in earnings manipulation between government-controlled and non-government banks in developed countries. Next, to investigate whether the income smoothing behavior of state-controlled banks is driven by political objectives, the paper tests whether this behavior widens during national election years; the results provide strong support for this conjecture. The magnitude of the income smoothing behavior also varies with different countries and electoral characteristics. These findings suggest that the political channel plays an important role in determining the income smoothing incentives of state-controlled banks, especially in developing countries.     

Does bank capitalization matter for bank stock returns?

We examine US bank capitalization and its association with bank stock returns, and find that the book- and market-based capital ratios show different patterns. Fama-MacBeth regressions and portfolio analyses suggest that banks’ market-based capital ratios are negatively associated with banks’ stock returns during the (tranquil) 1994–2007 period while book-based capital ratios are positively associated with banks’ stock returns during the (turbulent) 2008–2014 period. These results suggest that the effect of bank capitalization on bank stock returns depends on the capital measure used and the period considered.     

Credit-based early warning indicators of banking crises in emerging markets

This article explores the role of credit-based variables as early warning indicators (EWIs) of banking crises in the context of emerging economies. We collect data on bank and total credit to the private sector in emerging markets and evaluate the signalling performance by using the area under the receiver operating characteristics (ROC) curve (AUC). Our results show that nominal credit growth and the change in the credit-to-GDP ratio have the best signalling properties and significantly outperform the credit-to-GDP gap in almost all specifications for policy-relevant horizons. These findings are in stark contrast with the results on advanced economies, where the credit-to-GDP gap is the single best performing EWI. Our results emphasize the importance of caution when applying statistical methods calibrated for advanced markets to emerging economies.     

A bayesian estimation of reliability based on the extended gamma process as prior over the cumulative hazard function

The Dykstra and Laud's extended gamma process is assumed as prior process over the cumulative hazard function, (t), for a bayesian nonparametric estimation of the reliability functionR(t) from both exact and censored data. Particular cases and interpretative aspects are discussed also in the light of an illustrative example.This research was supported by Ministero della Pubblica Istruzione, grant 40% (Gruppo di ricerca «Modelli probabilistici»).     

Should banks diversify or focus? Know thyself: The role of abilities

The paper investigates whether diversification/focus across assets, industries and borrowers affects bank performance when banks’ abilities (screening and monitoring) are considered. The initial results show that diversification (focus) at the asset, industry and borrower levels is expected to decrease (increase) returns. However, once banks’ screening and monitoring abilities are controlled for, the effect of diversification/focus either gets weaker or disappears. Further, in some cases, these abilities enhance banks’ long-run performance, but in others they prove to be costly, at least, in the short run. Thus, the level of monitoring and screening abilities should be taken into consideration in understanding, planning and implementing diversification/focus strategies.     

Change Point Analysis based on Empirical Characteristic Functions

Test procedures for detection of a change in the distribution of a sequence of independent observations based on empirical characteristic functions are developed and their limit properties are studied. Theoretical results are accompanied by a simulation study.The work of the first author was partially supported by grants GAČR 201/03/0945 and MSM 113200008     

Why is it a man’s world,after all? Women on bank boards in India

Employing information on all publicly listed Indian banks covering the period 2003–2012, the study explores whether gender diversity impacts bank behaviour. The evidence suggests that the value addition to banks from the induction of women on their boards of directors is not compelling, although executive women directors enhance bank stability. Looking across ownership, the evidence suggests that gender diversity in state-owned banks enhances stability, but at the cost of lower profitability.     

How does HFT activity impact market volatility and the bid-ask spread after an exogenous shock? An empirical analysis on S&P 500 ETF

In this paper, we empirically analyse infra-second datasets of the SPDR S&P 500 ETF (specifically, the ETF of the S&P 500 exchanged on BATS, named SPY.Z) in order to explain how high-frequency trading (HFT) activities (aggressive and passive) impact market volatility and the bid-ask spread before and after an exogenous shock (i.e., the 2016 US presidential election). Using SPDR S&P 500 ETF datasets as a proxy for the market on regular volume trading days (November 3, 2016) and on high-volume trading days (November 9, 2016), we show that HFT, on average, has a disturbing action mainly on regular volume trading days, whereas on high-volume trading days, it appears to have a stabilizing effect by balancing both the volatility and bid-ask spread. That is, HFT as a whole has a more neutral impact on the market’s volatility and bid-ask spread than the single aggressive and passive components. In fact, aggressive HFT has a consistent negative effect that increases, on average, both the volatility and bid-ask spread, whereas passive HFT displays a positive effect that decreases, on average, the volatility and bid-ask spread.     

Direct and indirect effects of FDI in emerging European markets: A survey and meta-analysis

We review a large body of literature dealing with the effects of Foreign Direct Investment (FDI) on economies during their transformation from a command economic system toward a market system. We report the results of a meta-analysis based on the literature on externalities from FDI. The studies on emerging European markets covered in our survey report direct and indirect FDI effects weakening over time, similarly as in other FDI destination countries. This is imputable to a publication bias that is detected and to the fact that more sophisticated methods and more controls can be used once a sufficient time span is available. Panel studies are likely to find relatively lower spillover effects. The choice of the research design (definition of firm performance and foreign firm presence) matters. More specific to the sampled studies is the role played by forward and backward spillovers which dominate other channels in driving FDI externalities.