Re-examination of interest rate sensitivity of commercial bank stock returns using a random coefficient model

This article develops and tests a random coefficient two-index model for commercial bank stock returns which controls for the time-varying interest rate sensitivity caused by a bank's changing maturity profile. Using a sample of 51 actively traded commercial banks, the seemingly unrelated regression results provide evidence that commercial bank stock returns are significantly interest rate sensitive. The effect of interest rate changes on bank stock returns is found to be positively related to the maturity mismatch between the bank's assets and liabilities, when the proxy for interest rate changes and the proxy for maturity mismatch are compatible to each other.This article was written while I was a doctoral student at the University of North Carolina at Chapel Hill. It was presented at the 1989 FMA Annual Meeting in Boston.     

The High-Volume Return Premium

The idea that extreme trading activity contains information about the future evolution of stock prices is investigated. We find that stocks experiencing unusually high (low) trading volume over a day or a week tend to appreciate (depreciate) over the course of the following month. We argue that this high-volume return premium is consistent with the idea that shocks in the trading activity of a stock affect its visibility, and in turn the subsequent demand and price for that stock. Return autocorrelations, firm announcements, market risk, and liquidity do not seem to explain our results.     

More or Less Ambition in the Doha Round? Modeling the Development Impact of Recent Proposals

We analyse the impact on developing countries, whose economies depend heavily on agriculture, of a WTO Doha Development Round agreement based on greater or lesser levels of ambition. We present the results of an ambitious versus an unambitious Doha Round outcome, using the MIRAGE model of the global economy, with a special focus on developing countries. Our simulations are based on negotiating proposals from the run-up to the Hong Kong ministerial meeting but not agreed upon in December 2005. We compare those outcomes with the estimated effects of full global trade liberalization. The results for the two Doha scenarios demonstrate the high stakes of this negotiation given the positions of EU, US and the G-20 coalition. A successful round could deliver real gains both globally and for developing countries, but the magnitude of those gains depends on the shape of the agreement. A reform outcome based on the most ambitious components of the negotiating proposals of the US and EU delivers noticeably greater benefits than an unambitious outcome. Developing countries are exposed to very contrasting fortunes. The details matter in the differing proposals, such as the tariff and domestic support reduction formulae, tariff caps, and number of sensitive and special products. Negotiating commitment and diligence are needed in 2006 to avoid a hollow Doha outcome given the technical character of these details.     

Accounting aggregation: User preferences and decision making

This experiment tests the effects of alternative aggregations of accounting data in a simulated portfolio task. Certain entropy-based aggregation criteria were used to prepare differentially aggregated financial statements for use in the task. Subjects made allocations of initial edowments between hypothetical firms, disclosed confidence in their allocation decisions and reported on specific characteristics of the financial statements. Differences in reported usefulness of statement sets furnished were found to be associated strongly with measured information content. The results also provide limited evidence that decisions and judgments of subjects were affected by the information content of the accounting aggregations provided.     

AIDS is your business

If your company operates in a developing country, AIDS is your business. While Africa has received the most attention, AIDS is also spreading swiftly in other parts of the world. Russia and Ukraine had the fastest-growing epidemics last year, and many experts believe China and India will suffer the next tidal wave of infection. Why should executives be concerned about AIDS? Because it is destroying the twin rationales of globalization strategy-cheap labor and fast-growing markets--in countries where people are heavily affected by the epidemic. Fortunately, investments in programs that prevent infection and provide treatment for employees who have HIV/AIDS are profitable for many businesses--that is, they lead to savings that outweigh the programs' costs. Due to the long latency period between HIV infection and the onset of AIDS symptoms, a company is not likely to see any of the costs of HIV/AIDS until five to ten years after an employee is infected. But executives can calculate the present value of epidemic-related costs by using the discount rate to weigh each cost according to its expected timing. That allows companies to think about expenses on HIV/AIDS prevention and treatment programs as investments rather than merely as costs. The authors found that the annual cost of AIDS to six corporations in South Africa and Botswana ranged from 0.4% to 5.9% of the wage bill. All six companies would have earned positive returns on their investments if they had provided employees with free treatment for HIV/AIDS in the form of highly active antiretroviral therapy (HAART), according to the mathematical model the authors used. The annual reduction in the AIDS "tax" would have been as much as 40.4%. The authors' conclusion? Fighting AIDS not only helps those infected; it also makes good business sense.     

The regional character of Asian multinational enterprises

In recent issues of this Journal a debate has raged concerning the appropriate nature of academic research in the Asia Pacific region. While we support the desire for both rigor and regional relevance in this research, we wish to demonstrate a strong commonality between the performance of large Asian firms and others from Europe and North America. This prompts us to question the need for a new theory of the MNE based on the experience of Asian firms. Like their counterparts elsewhere, the large Asian firms mostly operate on an intra-regional basis. While in the literature it has been assumed that the path to success for Asian firms is globalization, we show that the data supporting this is confined to a handful of unrepresentative case studies. We also present a bibliometric analysis which shows an overwhelming case study sample selection bias in academic studies towards this small number of unrepresentative cases.

Management,Organizational Justice and Emotional Exhaustion among Chinese Migrant Workers: Evidence from two Manufacturing Firms

This article explores how Human Resource (HR) policies and practices influence employee perceptions of organizational justice, which in turn impacts employee emotions and feelings of emotional exhaustion. Using structural equation modelling and based on employee survey data drawn from two manufacturing organizations, we find that a strong HR system — perceived by workers as distinctive, attractive and consistently implemented — fosters perceptions of distributive, procedural and interactive justice. However, only distributive injustice leads to negative emotions and emotional exhaustion. This is explained by reference to the cultural and institutional context (China), status (migrant) and type of workers (semi‐skilled, manual) included in the study. We discuss the theoretical and practical implications that arise from these findings.     

Bank Risk, Capitalization, and Operating Efficiency

A simultaneous equation framework is used to test hypotheses about the interrelationships among bank interest rate and credit risk-taking, capitalization, and operating efficiency. A positive effect of inefficiency on risk-taking was found and supports the moral hazard hypothesis that poor performers are more vulnerable to risk-taking than high performance banking organizations. A positive effect of inefficiency on the level of capital is attributable to regulatory pressure on underperforming institutions. At the same time, firms with more capital are found to operate more efficiently than less well-capitalized banking organizations. A U-shaped relationship is detected between inefficiency and loan growth, indicating that operating efficiency improves at a decreasing rate as loan growth rate increases. This supports the hypothesis that entrenched managers who pursue a growth objective to enhance their own wealth tend to operate inefficiently.     

Forecasting employment : The role of forward-looking behaviour

Manufacturing output per head rose at an unprecedented rate in the UK in 1981/2, and conventional econometric relationships failed to forecast the associated falls in employment. In this paper we estimate manufacturing employment equations in which output expectations play a central role. These compare fabourably with alternative models, and are able to predict most of the large falls in employment over this period.