Motivations for Loan Herding by Chinese Banks and Its Impact on Bank Performance

This study uses a dynamic herding model that considers intertemporal and cross‐sectional correlation to confirm that loan herding occurs among joint‐stock commercial banks (JSCBs) and city commercial banks (CCBs). We clarify the motivations for bank loan herding. We find that loan herding by both JSCBs and CCBs results more from following the behavior of other same‐type banks than different‐type banks because of characteristic herding or reputational concerns. Loan herding by JSCBs is motivated by investigative herding, whereas loan herding by CCBs results from informational cascades. Moreover, loan herding has a significantly harmful impact on the operating performance of CCBs but not JSCBs, which may be explained by the irrational behavior of CCBs. Our results will help Chinese bank supervisors develop appropriate policies for handling loan herding.     

Growth decomposition bias when accounting for heterogeneous regimes: Evidence from China

When exploring the logic why some economies grow faster than others, previous studies commonly assume that all economies follow a universal growth path. This paper explores the heterogeneity of growth regimes across economies and then investigates the decomposition bias of growth sources in traditional methods. Using a panel data of China's provinces, the empirical results show that a finite mixture model with three classes is best to describe the data, revealing that there are multiple growth regimes across provinces. Also, some provinces switch regimes over time while the others remain stable. Further, neglecting heterogeneous regimes overestimates the importance of factor endowment and underestimates the importance of sector productivity, while it does not greatly influence the importance of of factor market efficiency. In particular, the decomposition bias embodies in physical capital and energy input rather than labor. Our findings indicate that the existing literature may underestimate the contribution of sector productivity. Thus, it is critical to account for heterogeneous regimes when exploring the sources of economic growth.     

Rejoinder to commentary on Chien, Cornwell, and Pappu (2010): Advancing research on sponsorship portfolio effects

This article responds to the issues Bibby (2010) raises in his recent commentary essay on Chien, Cornwell, and Pappu (2010). The rejoinder focuses on brand meaning's definition, measurement, construct delineation and operationalization, and cautions against outright rejection of Aaker's (1997) brand personality scale applied to the sponsorship context. Further, criticism by Bibby of employing Aaker's scale in Australia seems unwarranted given similarities in cultural values between Australia and the United States. Bibby (2010) also questions the legitimacy of event personality fit effects but the questions potentially misinterpret the construct used by Chien et al. (2010). While this rejoinder admits to the challenges of brand personality measurement, theory-testing goals of Chien et al.'s (2010) research are not compromised by the measures employed.     

How do Heterogeneous Beliefs Influence Asset Volatility?

We investigate the influence of heterogeneous beliefs on asset volatility when agents' degrees of confidence differ. With a continuous‐time model subsuming agent's heterogeneous beliefs in the expected increase in dividends, a stock price formula is derived. Based on this formula, the stock volatility is computed via Monte Carlo simulation. The results show that the influence of belief heterogeneity in expectation on volatility depends on the confident agents' level of optimism. Empirical results are also provided.     

Is the Quarter of Birth Endogenous? New Evidence from Taiwan,the US,and Indonesia

Recent evidence based on US data suggests that the quarter or month of birth (QOB or MOB) may be endogenous, since family characteristics can explain up to 50% of the effects of QOB on the education outcomes and earnings of adult males. In this study, based on a sample of one million Taiwanese siblings, we examine university admission at age 18 as our outcome variable and find that at school entry, the oldest (September born) children are 31–38% more likely to be admitted into university at age 18 than the youngest (August born) children, indicating strong seasonality in university admission. The inclusion of controls for family background is found to explain only a small portion of these effects, particularly for males. Given that such results are at odds with the recent US evidence, we revisit the US Census data and find that when racial differences are properly controlled for in the estimation, even a rich set of family characteristics is capable of explaining only a minor proportion of the QOB effects. Furthermore, using data from the US and Indonesia, we find that seasonal temperature variation is unlikely to be an important contributor to the US‐Taiwan disparity. Our findings imply that the validity of using QOB or MOB as an instrumental variable may be dependent on the population being studied and the sample selected.     

How does Bank Capital Affect Bank Profitability and Risk? Evidence from China's WTO Accession

This paper examines how bank capital affects bank profitability and risk in China, and how its impact differed before and after the nation entered the WTO. Our study uses the dynamic generalized method of moments approach with a panel database containing 171 Chinese commercial banks. We find that bank capital has significant influence on bank profitability and risk, but its impact has declined since China joined the WTO in 2001. For different sized groups, the impact of capital on profitability exhibits a distinct trend. The effects of capital on bank risk are different for large and small banks depending on the risk variables used for the Chinese banking industry.     

Interaction Orientation and Product Development Performance for Taiwanese Electronics Firms: The Mediating Role of Market‐Relating Capabilities

While academics and practitioners are increasingly aware of the value of including the customer in new product development (NPD), processes for doing so effectively remain unclear. Therefore, this study explores the process through which a firm's interaction orientation (the ability to effectively interact with customers) influences product development performance. Drawing on the resource‐based view, this study develops a research model in which two market‐relating capabilities—market‐linking and marketing capabilities—mediate the effect of interaction orientation on product development performance. The validity of this model is examined by analyzing primary data gathered from 167 Taiwanese electronics companies. The model results provide support for a process link between interaction orientation, market‐relating capabilities, and product development performance, such that a firm's capabilities enable the conversion of customer‐based resources into productive new product outcomes. More specifically, the interaction orientation–product development speed relationship is mediated by both marketing and market‐linking capabilities, while the interaction orientation–product innovativeness relationship is partially mediated by marketing capability. That is, interaction orientation has indirect effects on product innovativeness and product development speed by strengthening both marketing and market‐linking capabilities that in turn improve product development performance. In addition, the results suggest that a firm's interactive rationality moderates the relationship between interaction orientation and marketing capability. Overall, this study enhances our understanding of how firms achieve superior product development performance by developing effective customer interaction. The findings of this study provide important strategic insights into NPD.     

Size effect in January and cultural influences in an emerging stock market: The perspective of behavioral finance

This study aims to explain the size effect in January with the utilization of some theoretical arguments drawn from behavioral finance, such as mental accounting and house money, in a Chinese culture-oriented emerging stock market. Under Chinese tradition, employees are rewarded with a generous bonus before Lunar New Year, most often paid in January. This gain, analogous to the concept of house money, enhances the propensity to bear increased levels of risk, which in turn stimulates the demand for higher risk securities, particularly in a market that is mainly dominated by individual investors, as in Taiwan. The empirical results are consistent with our culture bonus hypothesis, that only small firms with higher risk in the Taiwanese stock market exhibit the apparent size effect in January, especially for the years when the bonus payments were in January and when the whole market had positive performance growth in the preceding year.     

Valuation of Catastrophe Equity Puts With Markov‐Modulated Poisson Processes

We derive the pricing formula for catastrophe equity put options (CatEPuts) by assuming catastrophic events follow a Markov Modulated Poisson process (MMPP) whose intensity varies according to the change of the Atlantic Multidecadal Oscillation (AMO) signal. U.S. hurricanes events from 1960 to 2007 show that the CatEPuts pricing errors under the MMPP(2) are smaller than the PP by 30 percent to 66 percent. The scenario analysis indicates that the MMPP outperforms the exponential growth pattern (EG) if the hurricane intensity is the AMO signal, whereas the EG may outperform the MMPP if the future climate is warming rapidly.