Firms’ debt choice in Africa: Are institutional infrastructure and non-traditional determinants important?

We use a World Bank survey data on the financing of incremental production to examine firms’ debt choice decision in eleven African countries, where capital markets are evolving and/or fraught with inadequate institutional infrastructure. Such a landscape suggests that hitherto overlooked nontraditional factors and institutions may be important determinants of debt choice. Interestingly, we find that some nontraditional factors and institutional infrastructure are robust debt choice determinants. Education level of managers, national incidence of corruption and ethnicity of owners are important for non-bank debt choice in Africa, with non-bank debt markets populated largely by the less formal trade credit and lease markets. Both effective legal and political infrastructures foster firms’ preference for non-bank debt while macro-instability discourages preference for non-bank debt; thus, flagging institutional infrastructures as vital for effective non-bank debt markets. Furthermore, we find evidence which confirms that capital markets in Africa are insufficiently spanned by the necessary debt markets; this should motivate relevant authorities to hasten development of public debt markets to supplement the currently limiting non-bank debt markets of trade credits and leases.     

The determinants of financial structure: How to explain the “paradox of insolvency and debt” among SMEs in Cameroon?

The paradox of insolvent enterprises regularly contracting new debts is the motivation behind this research. Statistical tests carried out on a sample of 62 manufacturing firms show that the financial behaviour of these enterprises is mainly explained by two factors: the rate of asset immobilization and the manager's social capital. The impact of the first factor is due to the asset capacity to serve guarantees, and the impact of the second is inherent to the possibility that enables relational networks to get around norms or to reach informal circuits and alternative sources of financing. The latter aspect is the beginning of the answer to the insolvency and indebtedness paradox. This result denotes the coexistence of two parallel dimensions in the Cameroon business environment. Besides the formal sphere, where the lack of confidence and readability between the actors pushes financial backers to excesses of prudence, subsists an informal universe where confidence, loyalty and solidarity seem to cement business relationships. However, the economic rationality of actors in these networks remains problematic.     

Financial regulation and financial inclusion in Sub-Saharan Africa: Does financial stability play a moderating role?

This study examines the impact of financial regulation on financial inclusion in Sub-Saharan Africa, considering the moderating role of financial stability. By analysing the relationship between financial inclusion and the most prominent macro-prudential regulation (capital adequacy), we find that tightening prudential regulations could negatively impact access to finance, thereby conflicting with Sub-Saharan African economies’ financial inclusion goals. More specifically, the capital adequacy requirement tremendously reduces banks’ capacity to provide financial services and this could lead to credit rationing thereby reducing financial inclusion. The results also indicate that, the interaction of financial regulation with financial stability positively impacts financial inclusion. Thus, financial stability augments financial regulation to have an affirmative impact on financial inclusion. The practical implications of this paper are that, one of the ways central governments and policy makers in Sub-Saharan African countries can increase and get the most out of financial inclusion is to formulate policies targeted at reducing capital adequacy requirements of financial institutions and other constraints that limit the operations and efficiency of financial institutions. Such policies should also aim at creating an enabling environment to promote financial stability.     

The magic of branding: The role of ‘pledge’, ‘turn’ and ‘prestige’ in fostering consumer trust in financial services

The purpose of this article is to study the impact of brand image on consumer trust through empirical investigation in the context of the financial services sector. While trust helps to bind consumers to brands, a strong brand image works like magic in reducing consumers’ risk perception and promoting trust. This study analyses how brand image influences consumers’ trusting intention through operationalising an interdisciplinary brand-trust model. Constructs and measures were drawn from interdisciplinary brand and trust literature and tested through employing EFA, CFA and structural equation modelling. Data were collected through a quantitative survey of 300 financial services consumers. Using the analogy of a magic trick, the study unveils the key role of financial services branding in engendering consumer trust in the ‘pledge’ or ‘prestige’ parts of the trick but not in the ‘turn’. The research contributes to the convergent and mutually inclusive theories of trust and branding as well as services marketing literature. For managers and policymakers in the financial services sector the findings will help them to effectively manage brand image and foster consumers’ trusting intention.     

Entry and capital structure mimicking in concentrated markets: The role of incumbents’ financial disclosures

We examine whether the public availability of product market incumbents' financial disclosures leads to greater capital structure mimicking of incumbents by entrants. Exploiting a change in disclosure enforcement for German private firms in the mid-2000s, we find entrant-incumbent mimicking rises substantially in concentrated markets once incumbents' financial statements are publicly available. Additional tests exploring potential mechanisms are more consistent with interfirm learning underlying the effect than alternative channels. Our findings shed light on the effects of competitor financial statement disclosure on private firms’ initial financing decisions and highlight how capital structure dependencies among peer firms arise.     

The perceiver’s social role and a risk’s causal structure as determinants of environmental risk evaluation

We present a dual-process risk perception model that integrates cognitive and emotional as well as consequentialist and deontological components by distinguishing between two modes of evaluative processing: (a) a consequentialist evaluation that focuses on potential consequences and (b) a deontological evaluation that focuses on moral values. Each of these two modes is assumed to trigger specific cognitive evaluations, specific emotions, and specific behavioral tendencies concerning a perceived risk. We conducted an experiment (N = 270) that tested whether the relative dominance of the two evaluative modes would depend on the causal structure of the environmental risk being evaluated and on the social role of the evaluator. Three types of causal structure were varied by providing scenario information: (a) anthropogenic risks that endanger only nature, (b) naturally caused risks with potential harmful consequences for humans, and (c) anthropogenic risks that may harm humans. Participants evaluated each scenario from the perspective of one of three social roles: mayor, expecting parent, and environmental activist. For each scenario, participants specified their focus and evaluated the event’s morality and perceived risk, the intensity of specific emotions, and their preferences for prospective behaviors. Results showed that the consequentialist evaluation was generally stronger than the deontological evaluation and was less affected by the experimental manipulations. The deontological evaluation was substantially affected by the risk’s causal structure. It was stronger for anthropogenic than for natural causation; risks caused by humans were associated with greater perceived moral blameworthiness, more intense morality-based emotions (e.g. outrage), and a stronger tendency to perform agent-related behaviors (e.g. aggression) than naturally occurring risks. The effect of the social role was less pronounced than that of the causal structure. Furthermore, the effect of an evaluative focus on behavior was fully mediated by emotions for deontological evaluations and partially mediated for consequentialist evaluations. The implications for environmental risk perception and communication are discussed.     

International financial services: determinants of banks’ foreign assets held by non-banks

Banks’ foreign assets held by non-banks are part of the growing volume of international trade in financial services. This paper investigates, for the first time, the determinants of banks’ assets held by non-banks for Germany, Japan, the United Kingdom and the United States. The underlying model used to measure banks’ foreign assets held by non-banks in this study, is based on those models which have measured the determinants of banks’ total foreign assets and international inter-bank activities. The empirical results of this model suggest a positive relationship with foreign direct investment in banking and banks’ foreign assets held by non-banks. Other significant factors identified include bilateral trade, the value of national income, and the real interest rate differential. Furthermore, banks’ foreign assets held by non-banks are found to be significantly related to the respective level of inter-bank dealings, such that a restriction on the overall amount of activities exists. Finally, global bank flows of opposite directions are found to be positively correlated, highlighting the fact that the perceived risk of foreign lending is reduced by simultaneous increases in banks’ foreign liabilities.     

The determinants of companies’ levels of integration: Does one size fit all?

This article extends current knowledge in the field of integrated thinking and reporting (ITR) by providing new empirical evidence on the nature and determinants of companies' levels of integration (i.e. ITR levels). Based on legitimacy theory and stakeholder theory, we empirically investigate companies' levels of integration and examine the drivers of different ITR levels. Our results suggest that companies' levels of ITR, namely Holistic, Integrated, Conservative, and Minimalist, are related to company characteristics and tend to remain consistent over time exhibiting routine and imitation. Companies with greater size, leverage, bigger board size and meetings, as well as companies operating in sensitive industries and with higher environmental performance are more likely to exhibit a Holistic or Integrated level of integration, while Minimalist and Conservative levels are driven by the same variables in opposite direction. Furthermore, at country level, economic growth, market performance, citizens freedom and lower environmental performance significantly contribute to higher integration. These results could drive companies' choices alongside policymakers’ initiatives, by identifying which levers should be pulled to achieve the desired level of integration, and suggest the need for a tailored approach rather than a one size fits all within the debate on the future developments of ITR.     

The impact of intangibles on firms’ financial and market performance: UK evidence

This study provides empirical evidence about the effect of intangible assets on firms’ current and future financial and market performance by utilizing a sample the UK FTSE 150 nonfinancial companies. Generally, the findings of this examination reported a strong evidence on the role of intangibles in boosting firms’ performance. In particular, the results indicate that while goodwill (GW) does have a statistically positive effect on firms’ current and future performance, research and development (R&D) is only associated with firms’ future performance. The results of the current research is consistent with the market-based and resources-based theories which posits that intangible investments are the main driving factors of wealth creation in the long-run; Specifically, R&D operations can create new technologies and products that would enhance firms’ performance and value. In addition, the results reveal that both GW and R&D can explain variations in firms’ financial performance measures suggesting that such investments can enhance firms’ earning leading to capitalization such earnings in the market value. Finally, the results of this research provide practical implication for policy makers and managers.     

The interplay of salesperson’s job performance and satisfaction in the financial services industry

Research has not yet provided conclusive confirmation or disconfirmation of any model that discusses the relationship between job satisfaction (JS) and job performance (JP). This article reviews the relationship in the financial services industry setting and examines in line with the precedents (perceived organizational support, role ambiguity, role conflict (RC), work-family conflict (WFC), emotional exhaustion (EE)) and the consequences (organizational commitment). Findings suggest that, in the financial services industry, JP causes JS and has a positive effect on organizational commitment. This study also finds that WFC serves as an antecedent to RC, EE and JS. Most importantly, the finding that WFC is significantly related to RC is new and thus needs to be confirmed in different industry settings.     

The cost of firms’ debt financing and the global financial crisis

We provide an assessment of the determinants of the risk premium paid by non-financial corporations on long-term bonds. By looking at 5500 issues over the period 2005–2012, we find that in recent years the sovereign debt market turbulence has been a major driver of corporate risk. Compared with the three-year period 2005–2007 before the global financial crisis, in the years 2010–2012 Italian, Spanish and Portuguese firms paid on average between 70 and 120 basis points of additional premium due to the negative spillovers from the sovereign debt crisis, while German firms received a discount of 40 basis points.     

Threat of entry and the use of discretion in banks’ financial reporting

This paper studies managers’ use of accounting discretion to deter entry. Using state-level changes in branching regulation under the Interstate Banking and Branching Efficiency Act, I find geographically-constrained community banks increased their loan loss provisions to appear less profitable when faced with the threat of entry by competitors. Additional tests rule out alternative explanations that firm economics or regulators drove the increase. I complement my analyses with survey-based evidence. Findings from the survey confirm that banks prefer to locate in markets where incumbents have high profitability and low credit losses, and that banks use competitors’ financial statements to analyze competition.     

The financial cycle and macroeconomics: What have we learnt?

It is high time we rediscovered the role of the financial cycle in macroeconomics. In the environment that has prevailed for at least three decades now, it is not possible to understand business fluctuations and the corresponding analytical and policy challenges without understanding the financial cycle. This calls for a rethink of modelling strategies and for significant adjustments to macroeconomic policies. This essay highlights the stylised empirical features of the financial cycle, conjectures as to what it may take to model it satisfactorily, and considers its policy implications. In the discussion of policy, the essay pays special attention to the bust phase, which is less well explored and raises much more controversial issues.     

How does corporate social responsibility affect financial performance,financial stability,and financial inclusion in the banking sector? Evidence from Pakistan

This paper examines the impact of corporate social responsibility (CSR) on the financial performance, financial inclusion, and financial stability of the banking sector, focusing on annual data for 20 Pakistani commercial banks for the period 2008–2017. The results suggest that CSR, as well as age and size, has a positive impact on all three factors. However, high levels of leverage reduce financial inclusion and financial stability, while financial inclusion is also negatively associated with the tangibility of assets.     

New development: A game of responsibility? The regulation of health and social care professionals

The UK's law commissions in a recent joint report have recommended that individual regulatory bodies for medical and other healthcare professions receive more decision-making power and that procedural regulation (for example fitness to practice proceedings) be standardized. Patient wellbeing and professional standing of practitioners are likely to be deeply affected. The legislative process needs to be scrutinized closely to ascertain that government and regulatory bodies do not use the reform to shirk accountability and engage in a blame game.     

Is sin always a sin? The interaction effect of social norms and financial incentives on market participants’ behavior

Using alcohol, tobacco, and gaming consumption data and people’s attitudes toward these sin products to proxy for social norm acceptance levels, we show a strong interaction effect between social norms and financial incentives, which significantly influence the behavior of market participants. Specifically, institutional investors’ shareholdings and analyst coverage of sin companies increase with the degree of social norm acceptance. The association between shareholdings/coverage and social norm acceptance is less pronounced for firms with higher future expected performance. Our results show that social norms and financial incentives have a powerful interaction effect in determining the behavior of market participants, suggesting that social norms can be crossed when motive and opportunity exist.     

Granularity in banking and growth: Does financial openness matter?

We explore the impact of large banks and of financial openness for aggregate growth. Large banks matter because of granular effects: if markets are very concentrated in terms of the size distribution of banks, idiosyncratic shocks at the bank-level do not cancel out in the aggregate but can affect macroeconomic outcomes. Financial openness may affect GDP growth in and of itself, and it may also influence concentration in banking and thus the impact of bank-specific shocks for the aggregate economy. To test these relationships, we use different measures of de jure and de facto financial openness in a panel dataset for 79 countries and the years 1996–2009. Our research has three main findings: First, bank-level shocks significantly impact upon GDP. Second, financial openness tends to lower GDP growth. Third, granular effects tend to be stronger in financially closed economies.