Addressing Financial Inclusion Challenges in Rural Areas from the Financial Services Marketing Employee Emotional Labor Dimension: Evidence from Nigeria

Financial authorities basically regard low financial literacy rate and poor information and communication technology as the major challenges facing financial inclusion drive, particularly among rural dwellers in Nigeria. No study has assessed the cause of low financial inclusion from the financial services marketers’ emotional labor perspective. This quantitative study attempted to close this gap by exploring how emotional labor variables relate to financial services sales performance and job satisfaction among bank marketers. Primary data were collected from 417 bank marketers operating in Edo and Delta States. Partial least squares structural equation modeling was used to test the formulated hypotheses. The outcomes show that surface acting has a significant negative effect on financial service sales outcomes and job satisfaction, while deep acting was found to have a significant positive effect on financial service sales outcomes and job satisfaction among bank marketers.

     

Comparison of sales performance across financial service sectors

In the new world of financial services, comparisons are going to have to be made on the productivity and performance of the various sales representatives within the industry: stockbrokers, bank sales representatives, financial planners and insurance agents and brokers. This paper discusses the problems involved in making cross-sector comparisons and proposes a way to compare the production of sales representatives who sell equity products with sales representatives who sell risk products. Comparisons are also presented for sales rep earnings and turnover.     

Crises,Liquidity Shocks,and Fire Sales at Commercial Banks

If liquidity shortages cause financial crises, a lender of last resort can provide funds to banks facing potential fire sales. However, if funding problems primarily occur at banks with existing solvency problems, then government liquidity programs may not spur bank lending. We find that commercial bank funding does not typically dry up in a crisis, not even during the subprime crisis. Rather, weak banks are more likely to borrow less. Furthermore, banks rely more on deposits and newly issued equity than fire sales. When they do sell assets, they cherry pick assets in order to alleviate pressure from capital regulations.     

Determinants of loyalty and recommendation: The role of perceived service quality,emotional satisfaction and image

This study develops and tests a model for the determinants of loyalty and recommendation. The model considers three drivers – perceived service quality, emotional satisfaction and image – that are positively related to each other and positively influence loyalty and recommendation. The model is tested using data from a survey of 222 Tunisian bank service customers. The hypotheses, which were tested using structural equation modelling, are all supported. The results confirm that perceived service quality, emotional satisfaction and image are key drivers of loyalty and recommendation. The research emphasizes the role of emotional satisfaction and image as mediating variables between perceived service quality and loyalty/recommendation. The study also shows that a better understanding of the determinants of behavioural intentions in the banking industry occurs when affective dimensions are considered along with cognitive ones.     

Laying off credit risk: Loan sales versus credit default swaps

How do markets for debt cash flow rights, with and without accompanying control rights, affect the efficiency of lending? A bank makes a loan, learns if it needs monitoring, and then decides whether to lay off credit risk. The bank can transfer credit risk by either selling the loan or buying a credit default swap (CDS). With a CDS, the originating bank retains the loan's control rights; with loan sales, control rights pass to the loan buyer. Credit risk transfer leads to excessive monitoring of riskier credits and insufficient monitoring of safer credits. Increases in banks' cost of equity capital exacerbate these effects. For riskier credits, loan sales typically dominate CDS but not for safer credits. Once repeated lending and consequent reputation concerns are modeled, although CDSs remain dominated by loan sales for riskier credits, for safer credits they can dominate loan sales, supporting better monitoring (albeit to a limited extent) while allowing efficient risk sharing. Restrictions on the bank's ability to sell the loan expand the range in which CDSs are used and monitoring is too low.     

The Impact of Trust-Preferred Issuance on Bank Default Risk and Cash Flow: Evidence from the Debt and Equity Securities Markets

Trust‐preferred stock is a debt‐equity hybrid that offers the tax deductibility of dividends but is treated as equity capital by bank regulators and rating agencies. The purpose of this paper is to examine whether holders of bank debt securities benefit from trust‐preferred issuance in the form of lower default premia and whether bank shareholders benefit from the tax deductibility of trust‐preferred dividends. Using daily returns surrounding the Federal Reserve's announcement that trust‐preferred securities would be included as a component of commercial banks' Tier I equity capital, we find evidence to support both hypotheses.     

The private placement of bank equity

This paper investigates the role of private placements of common stock as a source of bank capital. Our results show that information asymmetry problems that typically attend new offers of bank equity are mitigated in the private placement process. Moreover buyers of privately placed common stock seem to provide a quality certification of capital deficient bank holding companies. Our evidence is also consistent with the notion that buyers of privately placed common stock provide a monitoring service that aligns the interest of the bank's managers and shareholders. Finally, we find no evidence that private placements are predominately motivated by incumbent management's attempts to sell equity to a friendly buyer at the expense of the bank's current shareholders.     

New Evidence on the Determinants of Bank Risk

This paper uses equity returns for publicly traded US bank holding companies (BHCs) from 1997 to 2004 to identify the determinants of risk, measured by equity market volatility, and examine how they have evolved. The results indicate that balance sheet items such as commercial and industrial loans and consumer lending and income statement items such as other noninterest income drive the cross-sectional differences in BHC risk. Newly mandated regulatory data on the components of other noninterest income show that investment banking, servicing, securitization income, gains from loan sales, gains other asset sales, and other noninterest income are particularly volatile activities. This highlights the value of increased transparency as a means to improve market discipline and reduce the opacity of complex financial institutions. Finally, in the years after 2000, the locus of risk has shifted off of the balance sheet and onto the income statement as investors identify the new risks associated with evolving and expanding bank activities.     

Intertemporal efficiency analysis of sales teams of a bank: Stochastic semi-nonparametric approach

The primary role of a bank branch is evolving from a service provider towards a sales channel. Previous branch-level studies of sales efficiency consider a static setting of a single time period, ignoring the stochastic nature of sales outcomes. In this paper, we examine efficiency and performance of sales teams in a bank branch network over time, taking into account the changing demand and operational conditions, as well as random disturbances. The intertemporal sales frontier is estimated from the panel of monthly data over the years 2007–2010 using the stochastic semi-nonparametric envelopment of data (StoNED) method. The efficiency scores of sales teams and the trajectories of performance over time allow managers and the sales force to learn from past events and to develop the managerial and work practices across the network. While this study focuses on the case of a specific bank, some of the innovative features of our approach are applicable to sales efficiency assessment in other banks and financial institutions, as well as other network-based sales organizations.     

Deviations from daily uncovered interest rate parity and the role of intervention

This paper considers the relationship between daily deviations from uncovered interest rate parity and US and German central bank intervention. The study uses daily overnight Eurocurrency deposit rates with a maturity time of 1 day, which exactly matches the sampling interval of the data. The intervention data are the official net daily purchases and sales of dollars vis-à-vis the German mark by the Federal Reserve System and the Bundesbank. The model uses FIGARCH innovations to represent the degree of long-term dependence in the volatility process. Some support is found for the intervention variables affecting the risk premium as predicted by theory. The impact of intervention in the 2 years immediately following the meltdown of the equity markets in October 1987 and Louvre Accord is particularly strong.     

Bank earnings management and performance reporting of comprehensive income

FASB’s ASU 2011-05 mandated that comprehensive income (CI) and other comprehensive income (OCI) be reported in performance statements (a single income statement or a separate statement of CI) rather than equity statements. Employing a difference-in-differences research design with ASU 2011-05 as the treatment, I find that presenting accounting information in different statements affects bank earnings management, specifically, presenting CI and OCI in performance statements (especially in single-statements with net income) reduces earnings management through selective sales of available-for-sale (AFS) securities in the banking industry. I also find that the influence of ASU 2011-05 is primarily on banks with high equity incentives in the CEO’s compensation package or less CEO job security. Additional analyses suggest that performance reporting of CI and OCI increases the predictive ability of realized gains and losses of AFS securities; however, banks may manage loan loss provision as a substitute strategy when they have to decrease selective sales of AFS securities.     

Sell-side equity analysts and equity sales: A study of interaction

The extensive literature on sell-side analysts makes little reference to equity sales as a significant economic actor in the field. Drawing on a recent field study, our empirical evidence identified equity sales teams within brokers, who promote research to external clients, as a powerful agent cluster in close time-space proximity to analysts. This paper sheds light on analyst-sales interactions, which we contend represent an important field condition. The study employs concepts from strong structuration theory, in particular position-practice relations, to develop a narrative about sell-side analysts’ and sales team positional obligations, privileges, power relations and matters of trust. Our study makes three contributions. Firstly, we identify the symbiosis embedded in the relationship between sales and research - analysts need equity sales to market their product, to positively influence client perceptions of analysts and to provide access to prized fund managers. In turn, sales need analysts to provide content for them to market. Secondly, integral to sales-analyst interactions is the provision of feedback, which causes difficulties in the relationship, leaving analysts vulnerable to sales influence. Thirdly, regulatory tension has changed sales-analyst interactions, and this can enrich our understanding of why analysts continue to publish commoditised research into highly competitive markets.     

The impact of joint participation on liquidity in equity and syndicated bank loan markets

Market liquidity is impacted by the presence of financial intermediaries that are informed and active participants in both the equity and the syndicated bank loan markets, specifically informationally advantaged lead arrangers of syndicated bank loans that simultaneously act as equity market makers (dual market makers). Employing a two-stage procedure with instrumental variables, we identify the simultaneous equations model of liquidity and dual market maker decisions. We find that the presence of dual market makers improves the liquidity of the more competitive and transparent equity markets, but widens the spread in the less competitive over-the-counter loan market, particularly for small, informationally opaque firms.     

Credit line takedown and endogenous bank capital

This paper investigates the implications of the uncertain timing and usage of loan commitments for the optimal level of bank capital. We use trended Brownian motion to proxy the stochastic takedown of credit lines. Relying on “time to first passage” mathematics, we derive a probability density function for the time to depletion of the bank credit line as well as the likelihood for the time to exhausting the sources of liquidity that fund the loan takedown. Armed with these analytical results, we solve for the optimal level of bank capital within a simultaneous equation framework in order to capture the interrelationships of the endogenous variables. The optimality conditions produce a system of integral differential equations which refuse to yield reduced form solutions and provide no immediate intuition. Therefore, the maximizing values of the bank’s decision variables were simulated over a host of realistic scenarios. We document the comparative static behavior of the bank’s decision variables when equity is unencumbered by capital requirements and, also, examine the impact of the same parametric changes on bank behavior when equity is a fixed proportion of lending. Further simulations produce the expected time to liquidity depletion under different capital requirement schemes.     

Perceived performance,equity sensitivity and organisational commitment among bank managers

This study looks at equity sensitivity and organisational commitment and considers the possible moderation role that managers’ perception of organisational performance may have. Using an equity theory perspective, the constructs of equity sensitivity and organisational commitment, as well as the effect of perceived firm performance, are considered. A research model linking their interaction is proposed. Data are collected from managers of a commercial bank and moderated regression is used to test the hypotheses. Results support a positive effect of equity sensitivity on organisational commitment whereas high or low perceived firm performance is found to have a determining effect on this relationship.     

Mutual Funds and Stock and Bond Market Stability

The unprecedented growth of mutual funds has raised questions about the impact of mutual fund flows on stock and bond prices. Many believe that the equity bull market of the 1990s is attributable to the huge flows of funds into equity mutual funds during this period and that a withdrawal of those funds could send stock prices plummeting. This article investigates the relationship between aggregate monthly mutual fund flows (sales, redemptions, and net sales) and stock and bond monthly returns during a 30-year period beginning January 1961 utilizing Granger causality and instrumental variables analysis. With one exception, flows into stock and bond funds have not affected either stock and bond returns. The exception is 1971–1981, when widespread redemptions from equity mutual funds significantly depressed stock returns. In contrast, the magnitude of flows into both stock and bond funds are affected significantly by stock and bond returns.     

Compensation contracts and fire sales

This paper analyzes the impact of remuneration practices on banks’ risk-taking in a model with fire sales externalities. When these externalities are not internalized by a bank's shareholders and executives, borrowing and fire sales are higher than the socially optimal level. Our analysis shows that plain-vanilla equity fails to internalize fire sales externalities. Deferred equity and long-term bonuses unrelated to short-term profits can restore social efficiency. Bail-in bonds can achieve efficiency at a smaller cost since they allow for state-contingent payments. It is not the level but the composition of variable compensation that determines the inefficiency. Excessive regulation may lead to suboptimal levels of risk-taking. Government guarantees reinforce the fire sales externalities and the need for regulation.     

The impact of consolidation and safety-net support on Canadian,US and UK banks: 1893–1992

This study investigates bank consolidation and safety-net support provision in Canada, the UK and the US over a 100-year historical period, and the impact of these policy variables on bank capital and risk-taking choices. The study finds that consolidation and strengthened safety nets have largely supplanted the historical role of high bank capital levels in providing protection to risk-adverse depositors. Furthermore, despite strengthened safety-net guarantees, the study finds that bank asset-risk choices in the 1980s are comparable to those observed in the 1890s, while bank equity volatilities have shown approximately a 10-fold increase over this period. Finally, the study finds that bank capital ratios are as asset-risk sensitive in the 1980s as those in the 1890s, perhaps reflecting residual market discipline or regulatory moral-suasion effects.     

Bank portfolio exposure to emerging markets and its effects on bank market value

This study estimates a model of banking company equity returns taking into consideration book value and market value measures of their exposure to emerging markets debt. In this estimation, general systematic market factors, such as the rate of return on the S&P500 stock index and yields on a constant maturity 5-year Treasury note, are held constant such that the exposure variables are accounting for effects due to banks’ exposure to emerging market debt. The results, although not uniform among banking companies, support the hypothesis that the extent of exposure to emerging market debt are factored into the valuation of banking company equity contemporaneously. The inclusion of a market value indicator adds to the explanation of equity returns of some banks. It is also clear that knowing the extent of the exposure on a book value basis is important information alone that may allow investors to take account of or evaluate the effects of changes in banking company equity valuation from LDC debt exposures. We also perform an event study for three major debt crises to determine whether the market recognizes the effects of these events on bank valuation. The event study results show that there is little information from identifying the time period of the crises on banking company equity returns. Explanations for this are that the information of these possible crises has been embedded in bank changes in exposure and that the market valuation of the emerging market debt is already accounted for by our model.     

Methods of Payment in Asset Sales: Contracting with Equity versus Cash

We analyze intercorporate asset sales where equity is the means of payment, and compare the results to cash asset sales. Equity deals are value‐enhancing for both buyers, 10%, and sellers, 3%, while cash sales generate seller returns of 1.9% and buyer returns that are not significant. Combined wealth gains are large for equity deals, but modest for cash deals. Equity‐based asset sales are not a precursor to consolidations between buyers and sellers, and do not affect buyer openness to the takeover market. We conclude that the use of buyer equity conveys favorable information about the value of assets and buyers.