Do political connections affect stock price crash risk? Firm-level evidence from China

Using a sample of Chinese listed firms in the period from 2003 to 2012, this paper empirically investigates how the presence of politically connected directors affects stock price crash risk. We thereby make a distinction between listed state-controlled firms and privately controlled firms due to their different incentives to appoint politicians as directors on the board. Our empirical results show that politically connected directors exacerbate stock price crash risk in listed state-controlled firms, an effect driven by the appointment of local government officials as directors. In contrast, hiring politicians as directors, particularly central-government-affiliated directors, helps listed privately controlled firms to reduce stock price crash risk. Finally, good quality of institutions does not help to alleviate the positive relationship between political connections and stock price crash risk in listed state-controlled firms. However, it does weaken the role of political connections in reducing crash risk in listed privately controlled firms.     

Sources of time varying return comovements during different economic regimes: evidence from the emerging Indian equity market

We study the economic and non-economic sources of stock return comovements of the emerging Indian equity market and the developed equity markets of the US, UK, Germany, France, Canada and Japan. Our findings show that the probability of extreme comovements in the economic contraction regime is relatively higher than in the economic expansion regime. We show that international interest rates, inflation uncertainty and dividend yields are the main drivers of the asymmetric return comovements. Findings reported in the paper imply that the impact of interest rates and inflation on return comovements could be used for anticipating financial contagion and/or spillover effects. This is particularly critical since during extreme market conditions, the tail return comovements can potentially reveal critical information for active portfolio management.     

Explaining co-movements between equity and CDS bid-ask spreads

In this paper I show that the co-movements between bid-ask spreads of equities and credit default swaps vary over time and increase over crisis periods. The co-movements are strongly related to systematic risk factors and to the theoretical debt-to-equity hedge ratio. I document that hedging and asymmetric information, besides higher funding costs and market volatility risk, are driving factors of the commonality and are significantly priced in CDS bid-ask spreads.     

Pricing double barrier options under a volatility regime-switching model with psychological barriers

The prices of lots of assets have been proved in literature to exhibit special behaviors around psychological barriers, which is an important fact needed to be considered when pricing derivatives. In this paper, we discuss the valuation problem of double barrier options under a volatility regime-switching model where there exist psychological barriers in the prices of underlying assets. The volatility can shift between two regimes, that is to say, when the asset price rises up or falls down through the psychological barrier, the volatility takes two different values. Using the Laplace transform approach, we obtain the price of the double barrier knock-out call option as well as its delta. We also provide the eigenfunction expansion pricing formula and examine the effect of the psychological barrier on the option price and delta, finding that the gamma of the option is discontinuous at such barriers.     

Non-monetary sales promotion effects on credit cards

This study fills an important gap in the literature by exploring the effects of the attractiveness of a non-monetary promotion with premiums on credit card purchase intention and brand selection. Two experimental studies involving 386 undergraduates were done. Non-monetary sales promotions with attractive premiums have a positive influence on the credit card purchase intention, compared to non-monetary sales promotions with unattractive premiums. On brand choice, non-monetary sales promotions with attractive premiums increase the likelihood of brand choice promoted. Premiums attractiveness is an important variable in the evaluation of a promotional offer that aims to increase the intention purchase and motivate the selection of brand. This study helps managers in choosing the types of premiums that are valued by consumers in a promotion. Most of the studies explore monetary promotions, while this study contributes to literature by exploring the gap about the effects of non-monetary sales promotions on purchase intention and brand selection, especially in the bank services environment.     

Internal branding experiences in the financial services sector in South Africa

There is little doubt that employees are critical to the delivery of the service brand. Although existing models propose methods of internal branding, very little is known about the actual corporate experience. Academics around the world have spent decades probing internal marketing, its subset—internal branding—and the impact of internal branding on service delivery. This research focuses on how organisations execute internal branding, revealing critical success factors as well as obstacles encountered. The research was conducted in five large organisations in the financial services sector in South Africa. Each organisation is a highly recognisable consumer brand; the oldest of which is nearing 200 years of being in business and the youngest is just 20 years old. This research adds to the body of knowledge regarding organisational practice of internal branding. Key themes are identified, three of which are largely absent from extant models and literature.     

Reducing the distance: financial services education in web-extended learning environments

It is estimated that financial services comprise around 15% of the global economy. From the supply side, one key to meeting this demand is being able to educate and certify the people who provide these services. With the advent of the internet and related technologies, the ability to deliver financial services education synchronously to both online and on-campus attendees has become a viable alternative to pure face-to-face or pure online asynchronous education. Nonetheless, one question remains: can virtual technology deliver comparable quality of financial services educational experience as face-to-face teaching? It is this question our paper addresses using the theory of transactional distance. The theory of transactional distance postulates that for optimal learning, the cognitive gap between instructor(s) and learner(s) needs to be minimized. We explore how transactional distance in financial services education varies by attendance modality (in-class, online and mixed) in a synchronous, web-extended classroom. The implications for managers and researchers are explored.     

The optimal trade-off between interest rate risk and annual return of bond ladders

Bond laddering is a popular fixed-income investment strategy. The main purpose of this paper is to develop a methodology for determining private investors’ most interest rate risk (IRR)-return-efficient investment horizon for bond ladders (BLs), which are virtually free of credit risk. Two IRR measures of a continuously rolling and homogenous BL (CRHBL) are analytically derived under the assumption that interest rates are martingales. The first measure is the modified duration, which assumes a flat term structure of interest rates. However, this assumption is not fully supported by the empirical data and, thus, an additional IRR measure is proposed. Under each of these two measures, the ratios between the annual return in excess of the demand deposit rate and IRR of CRHBLs with different investment horizons are calculated. As expected, CRHBLs with rather low IRR are most risk-return-efficient. The results for the theoretical CRHBLs also apply to “real-world” discrete BLs. Thus, the proposed methodology can help private investors construct IRR-return-efficient discrete BLs.     

Fueling the buyout machine: fundraising in private equity

This paper analyzes the impact of performance, investment-firm-related, and macroeconomic variables on fundraising activities in private equity (PE). We use a novel, backward-looking approach to link current to preceding funds, which allows for including several parallel predecessor funds in our analysis. We employ logit and tobit models to a global sample of 1463 fundraising events observed between 2000 and 2010 in order to estimate the probability of raising and the volume of follow-on funds. Our results show that the average buyout duration of past transactions has a negative impact, whereas exits via an initial public offering (IPO) and deals without industry-style drift positively affect fundraising activities. Larger, industry-diversified, and independent PE firms exhibit a higher likelihood of fundraising and collect larger amounts.