Delinquency and Default in Arms: The Effects of Protected Equity and Loss Aversion

This paper extends the extant literature in understanding the effects of equity and debt on delinquency and default by focusing on a variant of borrower equity where part of equity is “protected”. The CPF scheme in Singapore stipulates that the refund of borrower’s retirement funds utilized for property purchase prior to September 2002 takes priority over loan obligations. A decision to utilize CPF for property purchase actually increases ex post delinquency and default risk as it effectively reduces cash equity commitment. In particular, any erosion in house value that places protected equity at risk translates into potential wealth reduction or financial liability for the borrower. While loss aversion is evident for non-distressed sellers, the effect of equity losses for distressed borrowers is not as clear. Our research suggests that averting losses in committed equity may be a secondary consideration for borrower subject to income shocks, recognizing that delinquency and default are precursors to foreclosure. Interestingly, we find that the borrowers are strongly averse to incurring protected equity-induced wealth loss or financial liability. This study suggests that the first-lien “anomaly” associated with CPF refund may reduce delinquency and default risks for mortgage backed securities.

Analyst Activity and Firm Value: Evidence from the REIT Sector

This paper is the first to examine (1) properties of analyst forecasts and (2) effects of analyst following on firm value for all REITs on CRSP, Compustat and I/B/E/S. Our results suggest that REITs operate in an information environment that has changed over time. We find that for periods when the REIT industry was either in the developmental stage (pre-1992), or after other structural changes in the industry (post-2000), more analysts cover REITs and forecasts are more accurate and less biased. Further, we find that mortgage REITs are more transparent than other REIT structures and exhibit properties of analyst behavior that are different from other types of REITs. Our investigation into the effect of analyst coverage on REIT value suggests that analyst coverage increases REIT value (as measured by Tobin’s q) and that the causality does not run the opposite way.

Sponsor Backing in Asian REIT IPOs

This paper tests the significance of sponsors in REIT IPOs viz-a-viz quality certification, signal of firm value, and commitment to alleviate moral hazard concerns. We model the REIT pricing and sponsor share retention decisions within a simultaneous decision framework as motivated by Grinblatt and Hwang (Journal of Finance 44:393–420, 1989). We find positive and significant bidirectional relationship between the fraction of shares held by the sponsor in IPO and underpricing which is consistent with Grinblatt and Hwang’s (Journal of Finance 44:393–420, 1989) signaling model. Our results also support the commitment hypothesis that developers that spin off REITs tend to hold more shares at IPO, possibly to compensate investors for the potential moral hazard problems in the aftermarket.     

Antecedents and Consequences of Skepticism toward Health Claims: An Empirical Investigation of Singaporean Consumers

The purpose of this study is to test the persuasive effects of visual metaphors in advertising. Advertisements containing visual metaphors deliver persuasive arguments in visual modality and metaphorical style of rhetoric, both of which may increase the persuasiveness of messages. The study has three message conditions that are advertisements containing (a) non‐metaphorical (literal) visual image with verbal argument; (b) metaphorical visual image with verbal argument; and (c) metaphorical image without accompanying verbal argument. Cognitive elaboration, source credibility, ad attitude, brand attitude, product belief, and purchase intention are considered as outcomes. The study results suggest that visual metaphors may be more persuasive due to both visual argumentation and metaphorical rhetoric. The theoretical explanations and managerial implications of the findings of this study are further discussed.     

SCUBA divers' underwater responsible behaviour: can environmental concern and divers' attitude make a difference?

The objective of this study is to examine the relationship between general environmental attitude and specific SCUBA diving attitude with responsible behaviour among divers underwater. The empirical data were collected from divers (N?=?413) at the five most popular islands for SCUBA diving in Malaysia using the combination of purposeful, quota and convenience sampling. The revised New Environmental Paradigm (NEP) scale [Dunlap, R.E., Van Liere, K., Mertig, A., & Jones, R. (2000). Measuring endorsement of the New Ecological Paradigm: A revised NEP scale. Journal of Social Issues, 56(3), 425–442] was utilised to measure the general environmental concern (attitude) among divers. Measurement of SCUBA diving attitude and underwater responsible behaviour was self-developed based on both literature review and expert opinions. Correlation and regression analyses were employed to examine the relationships among the constructs. Divers are mostly ecocentric and highly responsible underwater and possess a positive SCUBA diving attitude. Divers' behaviour underwater has a direct relationship with both environmental concern and specific SCUBA diving attitude. The latter partially mediates the relationship between environmental concern and responsible behaviour underwater. The cognitive and conative dimensions of specific SCUBA diving attitude are strongly related to skill diving behaviour and safety diving behaviour, respectively. The affective dimension of specific SCUBA diving attitude has a strong relationship with non-contact diving behaviour. Based on the study findings, this paper presents some of its theoretical and managerial contributions.     

ECONOMETRIC ESTIMATION OF ARMINGTON IMPORT ELASTICITIES FOR A REGIONAL CGE MODEL OF THE ILLINOIS ECONOMY

One of the main concerns associated with the development and use of regional CGE models is the determination of key parameter values, particularly substitution and other price elasticities. A common problem is the lack of appropriate regional data for econometric estimation. Consequently, it is important to identify key parameters that are likely to be important in determining quantitative results and then to prioritize these for estimation where appropriate data are available. In this paper, the focus is on the estimation of the regional trade (import) substitution parameters, which tend to be important in analysis for regional economies (given their openness to trade). Here, commodity import elasticities for the Illinois economy are estimated and tested in a single region CGE model of the Illinois economy. In our econometric estimation, we apply a model that takes account of market size and distance in estimating the substitutability between commodities produced in Illinois and other US states.     

Understanding liability of foreignness in an Asian business context: A study of the Korean asset management industry

This study provides an in-depth understanding of the liability of foreignness (LOF) in an Asian business context. Based on previous literature, we distinguish the two distinct cost components that comprise LOF: The cost of foreignness and the cost of multinationality. Whereas the former refers to the costs incurred by foreign firms when they develop location-specific advantages in a host country environment, the latter refers to the costs associated with an MNC’s multinational operation, more specifically, transferring firm-specific advantages from the home country (or elsewhere) and adapting them to a particular host country context. Based on this distinction, we investigate whether and how persistently each of these costs exists in an Asian business environment. Our data on the Korean asset management industry support the presence of both costs, resulting in lower performance increase of foreign firms relative to local ones from utilizing location- and firm-specific advantages, respectively. Furthermore, in our study setting, compared to the cost of foreignness, the cost of multinationality persists longer in the market, suggesting that the latter is more difficult and takes a longer time for MNCs to mitigate than the former. Our results provide important insights into detailed aspects of strategic challenges confronted by MNCs in the Asian business context from which they can derive effective strategic responses.     

Effects of hospital leadership,organizational systems,and ESWOS on medical error reduction

One of the major elements of care quality provided by health care organizations is the reduction of medical errors. This study empirically examines the effect of leadership, organizational systems, and employee satisfaction with organizational support on medical error reduction. A set of hypotheses is tested based on data collected from 208 medical staff of hospitals with more than 300 beds in South Korea. Data were analyzed by confirmatory factor analysis and path analysis using SPSS 17.0 and Mplus 5.1. One of the major findings of this study was that medical error reduction could be achieved by effective leadership. Leadership and operational efficiency drive reduction in medical errors in the health care industry. The comparison between large- and small-sized quality assurance teams’ roles indicated that there was a significant difference in their effect on medical error reduction. The results of the study shed light on some practical implications for management professionals in hospitals.     

Default Clustering Risks in Commercial Mortgage-Backed Securities

This paper proposes an intensity-based pricing model with default dependence structure for CMBS bonds. Three features are incorporated into the proposed model. First, default is a Poisson jump process defined by a function of mortgage rating information. Second, property risks are modeled using a high dimensional Brownian motion process that captures both systematic risk and idiosyncratic risk in property value. Third, default dependence structure is built into the extended model. Based on a set of input parameters, we simulate various pricing effects on a hypothetical CMBS using the proposed model structure. The results of the base-line intensity model show that yield spreads on CMBS bonds increase in the recovery rate, but decreases in the hazard rate. Security structured with smaller subordination tranche exposes CMBS bonds to higher default risks. The model predicts that default clustering increases required yield spreads of CMBS bonds. At a 70% recovery rate and a 3% default hazard rate, yield spreads of Junior bonds are expected to increase by 169 basis points when counterparty risks increase by 50%. The results highlight the importance of clustering risks associated with counterparty default when valuing CMBS bonds.     

Do Decomposed Financial Ratios Predict Stock Returns and Fundamentals Better?

We investigate the prediction of excess returns and fundamentals by financial ratios, which include dividend‐price ratios, earnings‐price ratios, and book‐to‐market ratios, by decomposing financial ratios into a cyclical component and a stochastic trend component. We find both components predict excess returns and fundamentals. Cyclical components predict increases in future stock returns, while stochastic trend components predict declines in future stock returns in long horizons. This helps explain previous findings that financial ratios in the absence of decomposition find weak predictive power in short horizons and some predictive power in long horizons. We also find both components predict fundamentals.