Bank size, market concentration, and bank earnings volatility in the US

We examine whether bank earnings volatility depends on bank size and the degree of concentration in the banking sector. Using quarterly data for non-investment banks in the United States for the period 2004Q1-2009Q4 and controlling for the quality of management, leverage, and diversification, we find that bank size reduces return volatility. The negative impact of bank size on bank earnings volatility decreases (in absolute terms) with market concentration. We also find that larger banks located in concentrated markets have experienced higher volatility during the recent financial crisis.     

Monetary policy and financial (in)stability: An integrated micro–macro approach

Evidence on central banks’ twin objective, monetary and financial stability, is scarce. We suggest an integrated micro–macro approach with two core virtues. First, we measure financial stability directly at the bank level as the probability of distress. Second, we integrate a microeconomic hazard model for bank distress and a standard macroeconomic model. The advantage of this approach is to incorporate micro information, to allow for non-linearities and to permit general feedback effects between financial distress and the real economy. We base the analysis on German bank and macro data between 1995 and 2004. Our results confirm the existence of a trade-off between monetary and financial stability. An unexpected tightening of monetary policy increases the probability of distress. This effect disappears when neglecting microeffects and non-linearities, underlining their importance. Distress responses are largest for small cooperative banks, weak distress events, and at times when capitalization is low. An important policy implication is that the separation of financial supervision and monetary policy requires close collaboration among members in the European System of Central Banks and national bank supervisors.     

Sanac Inc.: From ABC to time-driven ABC (TDABC) – An instructional case

This case deals with the decision of Sanac Inc., a Belgian wholesale company, on whether to proceed with the implementation of an activity-based costing (ABC) system or switch to time-driven activity-based costing (TDABC). As a business consultant, you are hired to decide about the appropriate costing method. Your task is to decide which system the company should implement, given the desire of the president of the company to calculate profitability at the order and the customer level.     

A Note on Family Influence and the Adoption of Discontinuous Technologies in Family Firms

The 4Cs model of command, continuity, community, and connections is useful for examining the effect of family influence on the adoption of discontinuous technologies. However, assuming that family influence differs only in degree rather than kind is naive because such an assumption ignores the likelihood of heterogeneous behaviors among family firms. In this conceptual note, we extend prior work and explain how heterogeneity in the family's relative emphasis on command, continuity, community, and connections requires that the multifaceted and potentially nonlinear nature of family influence be considered when analyzing strategic decisions concerning family firm innovation.     

Structural and relational influences on the role of reward interdependence in product innovation

This study examines the relationship between reward interdependence, or the extent to which managers' rewards are tied to the performance of colleagues in other functions, and product innovation. It also considers how structural and relational features of the organizational context might moderate this relationship. Our analysis of a sample of Canadian‐based firms reveals a positive relationship between reward interdependence and product innovation that is invigorated at higher levels of job rotation, social interaction, and interactional fairness, but we find no evidence of a moderating effect of decision autonomy. Consistent with a systems approach to organizational contingencies, we also find that the reward interdependence–product innovation relationship is stronger when the organization's context comes closer to an ‘ideal’ holistic configuration that is most conducive to knowledge exchange within the organization, with a more prominent role played by the relational sub‐context (social interaction and interactional fairness) than the structural sub‐context (job rotation and decision autonomy). The findings have important implications for innovation research as they shed light on how the extent to which individual rewards are tied to collective performance can be channeled to enhance innovation pursuits.     

当前我国经济金融形势和相关政策解析

本文分析了当前国内外经济金融形势,认为国际金融危机对我国金融业造成了一定程度的冲击.为应对国际金融危机,中国人民银行认真执行适度宽松的货币政策,灵活运用货币政策工具组合进行宏观调控,引导货币信贷较快增长,优化信贷结构,促使经济回暖和金融稳健运行.目前我国经济金融持续回升和复苏的基础尚不稳固,需要继续实行适度宽松的货币政策,进一步优化信贷结构,深化金融改革,促进国民经济稳定发展.     

Does freezing a defined benefit pension plan affect firm risk?

This paper examines the impact of a defined benefit (DB) pension plan freeze on the sponsoring firm's risk and risk-taking activities. Using a sample of firms declaring a hard freeze on their DB plans between 2002 and 2007, we observe an increase in total risk (proxied by the standard deviation of EBITDA and asset beta), equity risk (standard deviation of returns), and credit risk following a DB-plan freeze. The increase in credit risk is reflected in a decline in credit ratings and an increase in bond yields for freezing firms. When we examine investment strategies, we observe a shift in investment from capital expenditures before the freeze to more-risky R&D projects after the freeze, and an increase in leverage. These strategies (increased focus on R&D and higher leverage) increase the operating and financial risk the firm faces. Overall, we observe an increase in risk-taking following DB plan freezes, consistent with theories that DB plans act as “inside debt” that aligns managers’ interests with bondholders’.     

Liquidity operations during the financial crisis 2008/09: evidence from the relations between Korean won onshore and offshore markets

This paper addresses the interrelation of onshore and offshore markets before and after the Bank of Korea intervened in 2008/09. During the financial crisis, Korea faced a liquidity crunch and leveraged its high level of reserves to conduct swap agreements in late 2008. To analyse how the reforms affected the mean and volatility spillover in between the spot and NDF markets, an extended GARCH model is used. The main findings of this paper are that prior to the financial crisis, the spot market dominated the offshore market. This changed after South Korea addressed the won’s liquidity crunch at the height of the crisis. Mean and volatility spillover between the markets diminished and the price gap narrowed. In addition to the empirical results, the paper also underlines the significance of liquidity and robust capital requirements for central banks.     

Mean–variance and mean–semivariance portfolio selection: a multivariate nonparametric approach

While univariate nonparametric estimation methods have been developed for estimating returns in mean-downside risk portfolio optimization, the problem of handling possible cross-correlations in a vector of asset returns has not been addressed in portfolio selection. We present a novel multivariate nonparametric portfolio optimization procedure using kernel-based estimators of the conditional mean and the conditional median. The method accounts for the covariance structure information from the full set of returns. We also provide two computational algorithms to implement the estimators. Via the analysis of 24 French stock market returns, we evaluate the in-sample and out-of-sample performance of both portfolio selection algorithms against optimal portfolios selected by classical and univariate nonparametric methods for three highly different time periods and different levels of expected return. By allowing for cross-correlations among returns, our results suggest that the proposed multivariate nonparametric method is a useful extension of standard univariate nonparametric portfolio selection approaches.