Capital and Earnings Management: Evidence from Alternative Banking Business Models

This paper examines whether institutional characteristics distinguishing Islamic from conventional banks lead to distinctive capital and earnings management behavior through the use of loan loss provisions. In our sample countries, the two banking sectors operate under different regulatory frameworks: conventional banks currently apply the “incurred” loan loss model until 2018 whereas Islamic banks mandatorily adopt an “expected” loan loss model. Our results provide significant evidence of capital and earnings management practices via loan loss provisions in conventional banks. This finding is more prominent for large and loss-generating banks. By contrast, Islamic banks tend not to use loan loss provisions in either capital or earnings management, irrespective of the bank's size, earnings profile, or the structure of their loan loss model. This difference may be attributed to the constrained business model of Islamic banking, strict governance, and ethical orientation.     

Discretion in bank loan loss allowance,risk taking and earnings management

We study whether banks use the allowance for loan losses (ALL) for efficiency or for opportunistic reasons. We find that banks that had higher abnormal ALL during the period prior to the 2007–2009 crisis engaged in less risk taking during the pre‐crisis period and had a lower probability of failure during the crisis period. In testing earnings management to meet or beat earnings benchmarks, we find that abnormal ALL is unrelated to next period's loss avoidance and just meeting or beating the prior year's earnings. Our results suggest that banks use ALL for efficiency and not for opportunistic purposes.     

The financial crisis of 2008 in fixed-income markets

We explore how a relatively small amount of heterogeneous securities created turmoil in financial markets in much of the world in 2007 and 2008. The drivers of the financial turmoil and the Financial Crisis of 2008 were heterogeneous securities that were hard to value. These securities created concerns about counterparty risk and ultimately created substantial uncertainty. The problems spread in ways that were hard to see in advance. The run on prime money market funds in September 2008 and the effects on commercial paper were an important aspect of the crisis itself and are discussed in some detail.     

Optimal agenda-setter timing

Abstract .  We analyze the optimal timing problem of an agenda setter who can propose a project that is then voted on by a committee. The payoff consists of a common stochastic component and an idiosyncratic component that differs among committee members. The agenda setter may be biased for or against the project, relative to the median committee member, and chooses when to call the vote. We analyze how the timing decision depends on the political environment and the bias of the agenda setter. We show that both positively and negatively biased agenda setters can implement decisions that differ from those preferred by the median committee member.     

The evaluation of time-dependent attributes

This study investigated time-dependent attributes; that is, those not known during use but where the passage of time reveals information about the attribute. In a lab experiment, subjects were asked to try out a new home banking system. Two independent variables were manipulated: (a) the accuracy (or inaccuracy) of a bank transaction, and (b) whether the information about accuracy was revealed immediately or after a delay. An unknown time-dependent attribute (i.e., accuracy of fee charges) was evaluated more favorably when a highly correlated attribute, transaction accuracy, was also evaluated positively. When the attributes were not highly correlated, there was an interactive effect of information about transaction accuracy and the time when this information was revealed on evaluations of time-dependent attributes. Generally, information that was received with delay influenced the evaluation of time-dependent attributes, but information received immediately did not. © 1996 John Wiley & Sons, Inc.     

Demographic Dissimilarity and Workplace Inclusion

This study examined the relationship between individual demographic dissimilarity from co-workers and three indicators of inclusion by an organization: decision-making influence, access to sensitive information, and job security. Data from 345 individuals in eight work units showed that individual dissimilarity in race and gender were negatively associated with inclusion, and the effect of race dissimilarity was more pronounced for whites than for non-whites. In contrast, individual dissimilarity in tenure and education level were positively associated with inclusion, and these effects were more pronounced for those with greater tenure and greater education, respectively. Overall, the results suggest that whether being different hinders or helps organizational inclusion may depend on whether that difference is visible and whether it reflects job expertise. Further, they suggest that, when being different is a hindrance, it may be hardest on those who have traditionally been the majority in organizations.     

Evaluating new product ideas….systematically

Survival, growth, and the creation of a comparative advantage are all important concerns of smaller enterprises. In order to address those concerns, new product ideas must be found, screened, and developed, but over 80% of these enterprises do not, according to a survey, have a systematic process to carry out these tasks.This paper suggests potential sources for finding new product ideas and presents a simple model, which has been tested extensively, that may be used to screen them. This systematic approach, the authors conclude, should help to minimize the costs and risks of developing products that are likely to fail in the marketplace.     

The refsnes seminar: Economic theory and north–south negotiations

This paper attempts to assess existing economic theory and its use by policy-makers in North-South negotiations. Particular attention is directed at international trade in manufactures, primary commodity issues, and international monetary questions. Problems considered include: weak theory, the employment of overly crude models by policy-makers, paradigm clash, implicit bias, and inadequate knowledge of facts. An agenda for further research and possible action concludes the discussion. The paper is a personal summary of the discussions in a conference on the relevance of economic theory to NIEO negotiations.